ORAL ANSWERS TO QUESTIONS

NORTHERN IRELAND

The Secretary of State was asked—

Drug-related Crime

Andrew Selous: What recent assessment he has made of the effectiveness of policing in Northern Ireland in relation to drug-related crime.

Paul Goggins: The Police Service of Northern Ireland is committed to building on recent successes in disrupting the supply of drugs in Northern Ireland by increasing the number of significant arrests and seizures and further reducing levels of drug-related crime.

Andrew Selous: Does the Minister share my concern about dissident paramilitary groups undertaking their own policing of drug issues? In particular, Declan Gallagher was apparently told by the Real IRA this month that he would be executed on sight for alleged drug offences and that the Real IRA is well armed and organised. What does the Minister have to say about that?

Paul Goggins: I join the hon. Gentleman in condemning activity of the kind that he has just described. Dissident republicans in Northern Ireland currently pose a threat, particularly to police officers. That needs to be dealt with, and it will be dealt with. There is no excuse whatsoever for any kind of parallel policing arrangements in Northern Ireland. The rule of law and order is there, and it should be seen to be followed.

Eddie McGrady: Although we commend the success of the PSNI in obtaining large drug hauls, does the Minister share my concern, which is common to all communities in Northern Ireland, both urban and rural, about the daily peddling of drugs in the streets by so-called small fry? Our immediate concern as a community is to get the small peddlers away from our children and our streets. Will he ask the PSNI to redirect some of its energy to picking up all the small fry, who are well known to the community?

Paul Goggins: I thank my hon. Friend for his support on that important issue. He understands that we must tackle the problem at several different levels. We need to take out the organised criminal gangs that bring in drugs and distribute them to networks in local neighbourhoods, and we need to make sure that people who peddle drugs on the street are arrested and dealt with, and that young people in particular understand the dangers and harms associated with drug misuse. In that context, I met members of the district policing partnership and the community safety partnership in Craigavon yesterday. They are working to make sure that parents and children are well informed and that there is proper enforcement of the law in relation to drugs offending. A lot of very good work is happening locally.

Sammy Wilson: The Minister is right that there have been significant drug hauls in Northern Ireland, many of which have taken place in my constituency since the port of Larne began to be used to import drugs. Does he accept that, as has been said, the problem is not being dealt with at street level? The assets of those who clearly live off the proceeds of such crime are not being seized in sufficient quantities. The real way to hit criminals is to put them behind bars and take their money.

Paul Goggins: I agree with the hon. Gentleman that it is important to take assets off criminals. I disagree with his view that that is not happening, because it is happening. Our approach has been reinforced by the coming together of the Assets Recovery Agency and the Serious Organised Crime Agency, which is beginning to make a difference. We need to take assets off criminals, and we need to make sure that where there is evidence of criminality, people are brought to court and dealt with.

Chris Ruane: What further progress can be made on the proceeds of crime? Where does Northern Ireland lie in the league table of confiscating criminal assets, especially from drug barons?

Paul Goggins: In Northern Ireland, we have a solid record on taking assets from criminal gangs and indeed from individual criminals. That effort has been reinforced by the coming together of the agencies, as I have described. I am committed to reporting to the Northern Ireland public on a quarterly basis how effective we have been in that particular quarter in relation to asset recovery. My hon. Friend is right: people want to see criminals being brought to book and having their assets taken from them, and they want to see those assets being put into funding front-line policing and other community services.

David Burrowes: Will the Minister acknowledge the continued significant problem of cannabis in Northern Ireland, where seizures of cannabis increased by 16 per cent. last year? Will he also clarify whether the PSNI will have success in implementing the Home Secretary's published policy of three strikes and out, given that the police national computer will not record the first offence when a warning is issued?

Paul Goggins: There has been considerable success in recent months in the closing down of 77 cannabis factories in Northern Ireland. Much of that cannabis was not for consumption in Northern Ireland and was for export to elsewhere. There have been 71 arrests, and cannabis worth £15 million has been seized. I am sure that the hon. Gentleman will join me in congratulating the PSNI on its very effective work in that regard. Cannabis is, of course, being reclassified to class B, and anybody who is found in possession of cannabis in Northern Ireland will be referred to the Public Prosecution Service.

Criminal Justice and Policing

Shailesh Vara: What recent discussions he has had with the First Minister and Deputy First Minister on the devolution of responsibilities for criminal justice and policing.

Andrew MacKay: What recent discussions he has had with the First Minister and the Deputy First Minister on the devolution of responsibility for criminal justice and policing.

Shaun Woodward: I regularly meet the First Minister and Deputy First Minister to discuss progress on devolution. The Government's view is that devolution of policing and justice should be completed and that, in relation to those powers already involved, the Executive should meet regularly.

Shailesh Vara: I thank the right hon. Gentleman for that reply. Given that the relationship between the First Minister and Deputy First Minister is rapidly deteriorating, does he believe that there is a realistic chance of a working Executive in the foreseeable future?

Shaun Woodward: Yes I do, is the short answer to that. The Executive have not met since June, and that is a serious matter for everyone who wishes devolution well in Northern Ireland. It is absolutely in the spirit of the St. Andrews agreement that there should be stable government. There are, of course, many instruments to stable government and one of them is the meeting of the Executive. It is essential that the Executive should meet to make decisions about fuel poverty and other issues; we recognise that. However, we equally recognise that the devolution of policing and justice needs to be completed in the spirit of the St. Andrews agreement. It is also our view that if good will prevails, no single issue on the table cannot be resolved by the politicians elected in Northern Ireland.

Andrew MacKay: What does the Secretary of State make of the Stormont Assembly and Executive Review Committee's vote yesterday? It has set a timetable of five weeks for the discussion on the devolution of policing and justice in the Province. Does he think that the five-week target will be met? If it is not, will he ensure that alternative action is taken so that minds are concentrated?

Shaun Woodward: The right hon. Gentleman raises an important issue in observing the decision made yesterday by politicians elected in Northern Ireland to proceed with work by the Assembly and Executive Review Committee on policing and justice. The proposal that went from the First Minister and Deputy First Minister in the summer this year to that Committee, and on which the Committee is now working, represents a significant step forward in building confidence in all communities in Northern Ireland. It is for the Committee to decide on matters of timetabling, but the progress is welcome. Whatever the arguments taking place on the timing of this issue, it demonstrates a willingness by everybody to proceed with completing devolution.

Peter Hain: I welcome what the Secretary of State has said and endorse his determination to seek progress. I remind the House that, operationally, policing is pretty well devolved already, through the Policing Board. However, it is the unfinished business of the settlement last year and it is crucial, especially to the nationalist and republican communities, that the devolution of policing and justice should occur. The republicans signed up to an historic move to support policing and the Democratic Unionist party deserves great credit for insisting on that. However, the other side of the bargain was that devolution should take place. The whole House should fully support the Secretary of State and all those involved at Stormont in achieving that as soon as possible.

Shaun Woodward: I thank my right hon. Friend for everything that he did as Secretary of State for Northern Ireland. He played a very significant part in helping to achieve the agreement that allowed devolution to go forward in the elections last year, and his continued work through the BIIPB—British-Irish Inter-Parliamentary Body—is an extremely important part of the work of politicians in Northern Ireland and elsewhere.
	This issue is a matter of relationships between those people elected in Northern Ireland. Progress has always basically been made in Northern Ireland as an article of faith and trust. It is essential that we build that faith and trust to go forward, but as I have already remarked, our view is that there is no issue on which the parties need not find resolution if they wish to.

Mark Durkan: Will the Secretary of State help things by injecting a truth check with Sinn Fein that this issue was not nailed down in the St. Andrews agreement in the way that it claims? Will he further help things with a reality check to the Democratic Unionist party that devolution of justice and policing is an imperative, as a legislative assembly is not worthy of the name if it does not take responsibility for criminal law? We can achieve the best meshing of plans, budgets and policies across related services with the devolution of justice and policing. The best way for all parties to unite to confound the dangerous agenda of republican dissidents lies in securing devolution sooner rather than later.

Shaun Woodward: The hon. Gentleman makes a set of extremely telling remarks about the state of the relationships between individuals in the Assembly and the Executive. It is a matter of trust, perhaps more than truth, being established in order to go forward. However, I share his view that a substantial risk to stability in Northern Ireland is caused by the new threat of dissident groups such as the Real IRA and Continuity IRA—not PIRA as in the past—which are exploiting the political vacuum that risks being opened up by a perception that politics is failing in Northern Ireland. It is our view, and I hope that of the House, that what has been demonstrated in Northern Ireland is that politics can triumph over violence and bring peace and prosperity. It is essential that we continue to build that trust so that those who might turn to crime are prevented from doing so.

Nigel Dodds: Will the Secretary of State add his voice to those saying that it is deeply unacceptable for Sinn Fein alone to block meetings of the Executive when all the other parties want those meetings to happen and the people of Northern Ireland want decisions made for the good of everybody—in the interests not only of Unionists or nationalists but of the people of Northern Ireland—and that the blame for there being no such meetings clearly lies with Sinn Fein? Does he also agree that it is wrong to continue to assert that Unionism signed up to any kind of date for the devolution of policing and justice, which would involve people who were murdering the police a short time ago being involved in running the police? As the hon. Member for Foyle (Mark Durkan) pointed out, this matter was not agreed at St. Andrews, and Sinn Fein received no such commitment from Unionists.

Shaun Woodward: It goes without saying that it is essential that government is seen to be stable and functioning in Northern Ireland. The Executive are a tool of the institutions. It is essential to resolve the problems that have arisen, which have resulted in some decisions on the Executive agenda not being agreed, thereby preventing meetings from taking place. The hon. Gentleman will know that one of the critical issues for Sinn Fein rests on agreement about producing a date on which policing and justice will be transferred. I share his analysis of the St. Andrews agreement. However, within that agreement between the British and Irish Governments, it was perfectly clear that it was the view of both that it would be possible, within a timetable of 12 months, to complete that transfer, given confidence in the community. I remind him that we have to be very careful about allowing confidence building to be an excuse for indefinitely delaying the transfer. I know that the leader of his party is working extremely hard in expressing his view that it is an ideal, as well as a manifesto commitment, that his party completes it. However, this is about trust and working in the spirit of St. Andrews, and it remains the case that, if the politicians so choose, a way can be found to resolve the matter and for the Executive to meet.

Patrick Cormack: In endorsing almost everything that the Secretary of State has said, may I ask him to talk immediately to those who have chosen not to take the seats that they could take in this House, and to tell them that if they remove their block on the Executive they are more likely to achieve what everybody wants than if they maintain it?

Shaun Woodward: I constantly have discussions with the leaders of all the political parties, with the First Minister and Deputy First Minister, and indeed with those politicians who currently take the view that it is not possible to agree an agenda for the Executive to meet. The hon. Gentleman makes a number of important observations. We have expressed to Sinn Fein our belief that the Executive should meet. I would like to put on record our thanks to the special envoy of the United States, who yesterday met the leaders of all the political parties to discuss with them the issues that are producing a deadlock in the Executive. I thank the special envoy and the President of the United States for their continued involvement in wishing to see the politicians in Northern Ireland complete devolution and ensure that government is stable.

William McCrea: Surely we have left the days of threats and intimidation behind us. Now we are told that if we do not have devolution of policing and justice, the dissident IRA will threaten the people of Northern Ireland. Does the Secretary of State not remember that the main ingredient of the triple lock given by the Government allowed confidence in the community, and that the Northern Ireland Office poll acknowledged that there was not confidence in the community in the devolution of justice at this time? Surely the Executive and the Assembly should get on with the business that they have authority over, rather than looking for something else.

Shaun Woodward: The hon. Gentleman always makes a telling observation, and I understand the position that he is marking by asking his question. First, I would correct him by saying that recent polling conducted by the Northern Ireland Office, and indeed previous polling, show that in each community in Northern Ireland there is support to complete the transfer of policing and justice powers from Westminster to politicians there.
	The hon. Gentleman is right to observe that the legislation contains a triple lock. It is of real concern to many nationalists that the triple lock could be used as a mechanism for indefinite delay. One of the most important things to be done, therefore, which includes his work, is to help to establish trust across the communities. His party and the people whom he represents must be as committed to completing devolution within a confidence-building framework as they ever have been, and he should express to them the view that if devolution can be completed sooner, having established that confidence, it would help to achieve greater stability in government.

Owen Paterson: Northern Ireland is not exempt from the economic crisis. Unemployment rose by 45 per cent. during the past year in mid-Ulster —[ Interruption. ]

Mr. Speaker: Order. Let the hon. Gentleman be heard.

Owen Paterson: The priorities for people outside the political bubble are the matters that affect them every day, rather than the timing of devolution of policing and justice. As the impasse is not on the principle, but on the timetable of devolution, has the right hon. Gentleman made it crystal clear that blocking the Executive is wholly unacceptable as recession looms?

Shaun Woodward: It has to be said that the Executive not meeting would be unacceptable to all those who want to see stable government, whether there is a downturn or not—or whatever description the hon. Gentleman chooses of the economic situation of the country. However, there should not be a false choice. It is not a choice between the Executive meeting or not dealing with the devolution of policing and justice. It was essential to bring the nationalist and republican community on board that the articles of faith enshrined in the principles of St. Andrews, between the two Governments, were seen as such. It remains as important today as it was this time last year that Unionism demonstrates its commitment to completing devolution, but that is not a choice with the Executive not meeting. The Executive must meet because there are decisions to be made. I hope—I welcome the hon. Gentleman's support for the Government on this point—that we can get all parties in Northern Ireland to focus on what needs to be done, which is to address the problems of the downturn, of course, but they cannot be allowed simply to park the issue of policing and justice for another day. The work on that issue needs to continue now.

Owen Paterson: The right hon. Gentleman mentioned St. Andrews, where the British and Irish Governments agreed that devolution should go ahead only when cross-community confidence was sufficient. As all parties in Northern Ireland bought into the current settlement, will he give the House a clear assurance that the matter should be decided locally and that, if there is still no agreement from the Executive on timing in current months, he will not introduce legislation to impose it on one section of the community?

Shaun Woodward: As I have already said, it remains the view of the Government that the parties in Northern Ireland should be able to find a resolution to these issues. Equally, it remains the case that the British and Irish Governments have not simply washed their hands of responsibility for ensuring the stability of government in Northern Ireland, as it has still yet to complete devolution, not least with the transfer of policing and justice powers. Therefore, as in other areas of Government policy, we will stand with the people of Northern Ireland. We will help the people of Northern Ireland in any way that we are asked to achieve stability in government. That means encouraging not only the Executive to meet, but the political parties to complete the policing and justice process, not least because we believe that there is now sufficient community confidence to do that, and it is the duty of politicians there to proceed and execute their responsibilities for stability.

Andrew MacKinlay: Could not the Government help with confidence-building measures on security and criminal justice in Northern Ireland by releasing to the families of the victims of the Omagh bombing GCHQ's detailed records about the time lines and exactly what it did in response to the Royal Ulster Constabulary's request to track and follow people who we understand were the perpetrators of those crimes?

Shaun Woodward: My hon. Friend makes an extremely important point about the horrendous crimes that took place at Omagh 10 years ago. Despite the passage of 10 years, I am sure that everybody in the House will join me in remembering the 29 people who were murdered and the two unborn children.
	My hon. Friend understandably makes remarks about intercept recordings, which "Panorama" recently threw into the light. He will know that the Prime Minister has asked Sir Peter Gibson to conduct an urgent review to consider the way in which the intercept evidence was shared and used that day. The Prime Minister has asked for that report to be brought to him as soon as possible, and he made it clear that he will report to the House as soon as is practicable.

Alistair Carmichael: The Secretary of State is right to identify the lack of trust between the parties as a major barrier to progress. What can he and the Government do to rebuild that trust? Does he accept that it must be rebuilt not only in Belfast but in the House? The House endorsed the St. Andrews agreement on the basis that it reflected trust between the parties and commitments that were made but are not now being honoured.

Shaun Woodward: I thank the hon. Gentleman for his support, especially in the past few months, when the Government have been working with the parties to seek resolution to the problems. He is right to refer to trust and the need to establish it, and to say that everyone in the House has a responsibility to ensure that government in Northern Ireland is successful. It is in all our interests for devolution to work. The work yesterday of the special envoy, Paula Dobriansky, and that of the American Government, the Irish Government, the British Government and the Opposition parties—I thank them for their continued support—is to try to help the parties in Northern Ireland achieve resolution. However, it is important for everyone to recognise that we all have a responsibility, and every part that we can play to help the parties develop and rebuild trust is essential at this moment.

Security

Anne McIntosh: What recent assessment he has made of the security situation in Northern Ireland; and if he will make a statement.

Shaun Woodward: For the vast majority of people in Northern Ireland, the security situation has been transformed and there is continued and welcome progress towards normality. However, there are small, completely unrepresentative factions of dissident republicans who remain active and dangerous. While loyalist groups are making encouraging progress, they have yet to decommission their arms.

Anne McIntosh: Does the Secretary of State share my concern about the recent attacks on police officers in Northern Ireland? What assessment has he made of the danger that they face and what steps is he taking to improve the security situation in Northern Ireland?

Shaun Woodward: The House will wish to know that the security threat to police officers in Northern Ireland is higher at the moment than at any point in the past five years. The hon. Lady mentioned attacks on police officers; several have taken place, and they were marked by the cowardice as much as the criminality of those who perpetrated them. We owe a huge debt not only in Northern Ireland but throughout Great Britain to the brave men and women of the Police Service of Northern Ireland who daily put their lives on the line to protect the communities. Their welfare is of concern not only to the Chief Constable, Sir Hugh Orde, but to the Government and everybody in the House. We will make every resource available to ensure that we protect our police officers. However, it is the wish of those police officers that stability be maintained in Northern Ireland. We can support that best by completing devolution, and by the Executive meeting.

Laurence Robertson: I pay tribute to the very brave police officers who are withstanding these terrible attacks.
	On 16 August, dissident republicans carried out an attack in County Fermanagh in which they used Semtex that the Deputy Chief Constable described as old Semtex. In other words, it is likely to have come from the IRA, which was supposed to have disarmed and put all its weapons beyond use. What does the Secretary of State make of the situation and what assessment has he made of the likelihood of dissident republicans getting further supplies and of IRA members joining the dissidents in carrying out such cowardly attacks?

Shaun Woodward: The hon. Gentleman again makes an extremely important set of observations about the attack that happened in the middle of August. Let me remind the House that the PSNI is and always has been aware that before decommissioning took place there was a concern that a small amount of ammunition and possibly Semtex may have been transferred. However, I would say this to the hon. Gentleman. It is important to focus on where the threat today is coming from. It is not coming from the threats of the past. The threat is not coming from PIRA; it is coming from new organisations that are, regrettably, filling the space in a political vacuum. I remind him and other hon. Members of the Independent Monitoring Commission report that was produced in September, which was categorical in saying that PIRA has completely abandoned its past and is completely committed to a political future. The organisation has been allowed to wither and the army council is effectively redundant. We should focus today on where the threat is really coming from, not on where it once was and has now gone away from.

PRIME MINISTER

The Prime Minister was asked—

Engagements

Ronnie Campbell: If he will list his official engagements for Wednesday 15 October.

Harriet Harman: I have been asked to reply. My right hon. Friend the Prime Minister is today at the European Council. He will make a statement to the House on his return.

Ronnie Campbell: May I ask the Leader of the House, who is obviously sitting in Superman's seat, whether she will look at the small business sector? I met a Northumberland jeweller in my constituency last week who has five workers, but who is thinking about laying two or three off. Can the Government do anything for these small businesses?

Harriet Harman: It is because of the importance of small businesses in our economy, particularly their importance as employers and given their impact on jobs, that we will do everything that we can to support them through what is undoubtedly a difficult time. One of the actions that we are taking is to ensure that Government and Government agencies pay their bills earlier, by cutting down the time that it takes the Government to pay from 30 days to 10 days. We want to ensure that we back small businesses up with more help through the European Investment Bank. One of the main reasons why we have been stabilising the banking system and buying shares in the banks is to ensure that they start lending again to small businesses at reasonable rates. We will do whatever it takes to back up our small business sector.

William Hague: On the day we discover that unemployment has risen by 164,000—the largest rise in 17 years—it is a grim day for the British economy and a time of anxiety for many families, as hon. Members, this week in all parts of the House, will acknowledge. Given that many companies have been hit by the credit problems, as the hon. Member for Blyth Valley (Mr. Campbell) just mentioned, and that if they can be given some breathing space, job losses can be reduced, will the Government now reform the insolvency laws along the lines that we have proposed?

Harriet Harman: We have already changed the insolvency provisions for businesses, in the Enterprise Act in 2003; we have already taken action on that. We are very concerned about unemployment and we are not complacent at all about the situation, despite the fact that unemployment is considerably lower than it was in 1997.
	There are two issues that I would like to point out to the House today. First, we are announcing £100 million extra to help those people who lose their jobs to retrain and get the skills that they need for new jobs. There are still 600,000 vacancies in the economy, and we need to help people who lose their jobs to get new ones. There will also be extra help for home owners who become unemployed. Instead of having to wait 39 weeks before they can get help to pay their mortgage, there will be help for them to pay their mortgage 13 weeks after they become unemployed.

William Hague: Will the right hon. and learned Lady acknowledge that statements about 1997 might now be complacent, given the forecast from Capital Economics this morning? It states:
	"We now expect unemployment to rise to 3 million by the end of 2010, exceeding the rise in the early 1990s".
	Will she also acknowledge that the £100 million programme announced by the Government this morning will be spread over three years, at £33 million a year? That will amount to £18 a year for each unemployed person. Will she also acknowledge that that money has already been allocated to the skills budget and has already been announced? Would it not therefore be a good idea to adopt our proposal, which the Federation of Small Businesses says
	"should save thousands of jobs from going under"?

Harriet Harman: As I have said, we have already made the changes to the insolvency provisions, in the 2003 Enterprise Act. We are not complacent about the situation in the economy. We have made no bones about the fact that our economy is facing hard times, but the right hon. Gentleman should not write our economy off. Our economy is made of sterner stuff, and the Chancellor and the Prime Minister have said that we will take every action we can, not only to stabilise our economy nationally but to work internationally with other Governments to stabilise the global system. That is why the Prime Minister is not here today.

William Hague: We understand why the Prime Minister is not here today. I am glad that the right hon. and learned Lady is not complacent, because she wrote in her blog in February that
	"people know that there is global financial turbulence but are not worried about their own prospects in 2008".
	Perhaps she will now acknowledge that that is no longer the situation. If she will not adopt our proposed measures on insolvency, may I ask her about another group of people who have been hit by the economic crisis in recent days? They are the people who have retired from their jobs. One such group is the pensioners who are forced to buy an annuity on reaching retirement or on reaching the age of 75. They will be locked into a lower income for the rest of their lives. Last week, we proposed suspending the rule on this, and Ministers said that they were looking at the proposal. Will the right hon. and learned Lady now cut through the delay, announce a decision by the Government and tell us that the Government will suspend that rule in order to help the incomes of thousands of pensioners into the future?

Harriet Harman: The right hon. Gentleman mentioned the blog that I wrote earlier this year. While it is true that the global seeds of this problem—the increase in oil and food prices, as well as financial instability—have been coming over a period of time, the impact on family finances, businesses and jobs has been sudden, not only in this country but around the world.
	The right hon. Gentleman mentioned pensioners. Yes, we are concerned about pensioners, who particularly feel the effect of the fuel increases. That is why we have increased the winter fuel payment. It is important to consider the question of the impact on people—albeit a small number of people—who have to buy their annuities within a certain period of time. I know that this is something that the Treasury is aware of, and I know that the Department for Work and Pensions is talking to the Treasury about the issue. But the most important thing is that we stabilise the markets so that shares can continue to be steady and their value can grow.

William Hague: I am glad that the right hon. and learned Lady acknowledges the importance of the issue about pensions. However, it is all very well being concerned about it and looking at it. Have not the events of recent times shown that swiftness in decision making is at a premium? Will she therefore undertake to go back to her colleagues in the Treasury this afternoon? Since this matter was at the top of our concerns, as she herself said only last Thursday, and since many pensioners are worried about it, will she sort it out today with her colleagues, so that they can come back to the House this week to tell us that that rule has been suspended?

Harriet Harman: I do not think that the Prime Minister or my colleagues in the Treasury need any advice from me on that point; nor do I think that they need any from the right hon. Gentleman. He can rest assured that they will act not only swiftly, but sure-footedly. There is a serious situation across the board—whether it be in respect of jobs, small businesses, the housing market, charities or local government—and we are determined to take the action that is necessary, not only nationally, but internationally, to see this country through.

William Hague: We look forward to the action— [Interruption]—instead of concern and talking, which is all we have had so far at today's Question Time. Small businesses and pensioners are two of the casualties of an economy built on debt, so what exactly do the Government mean when they say that they are insisting that institutions which are being bailed out will maintain borrowing at 2007 levels—the year at the height of the boom that has turned to bust? Is that not irresponsible? Why did Baroness Vadera of the other place say that there was
	"no requirement for banks to lend forcibly",
	while the Chancellor was saying that lending would be maintained "at 2007 levels"? Who is speaking for the Government and what are their policies on the lending of those banks?

Harriet Harman: Let me explain to the right hon. Gentleman and the House. Having ensured that money goes in via the Bank of England so that extra liquidity is available, having ensured that loans are made available on a guaranteed basis at commercial rates and having made provision for buying shares, we want to make sure that, after this Government's actions, instead of the banks just sitting on the capital, they actually lend it to small businesses and home owners. What would be the point of Government action if it did not make a difference to the people who are feeling the pressure of the global credit crunch? What has been written into the agreement with the banks in which we have taken shares is that they should, at reasonable rates, re-establish credit lines to the housing market and to small businesses. When it comes to Government debt, which the right hon. Gentleman also mentioned, I do not regret and we do not resile for one minute the investment in our schools and the public investment in our hospitals.
	Over the last 11 years, during which we were investing in hospitals and schools, we were also paying off Government debt. In 1997, public debt as a share of GDP was 43 per cent, and we reduced it to 37 per cent. We are now in a position to allow Government debt to rise in order to back up the economy in the way that is necessary. On Monday, the right hon. Gentleman's party backed the measures we took to help to get the financial services working properly. It is a shame that he does not back the means to achieving that end.

William Hague: Of course we backed those measures, but the Government are no longer in a position to boast about their economic record when taxes have risen by more than £5,000 for every family in the country since 1997, when the World Economic Forum says that 104 other countries are better prepared than us for the economic downturn, when debt has risen remorselessly, when unemployment is rising at the fastest rate for 17 years and when inflation has trebled since 1997. Against that background, is it not time to acknowledge that the claim to have abolished boom and bust was one of the most foolish, one of the most hubristic and one of the most irresponsible claims ever made by a British Prime Minister?

Harriet Harman: I think that this is a serious moment for the economy and that it requires action from the Government, but the right hon. Gentleman should not write Britain off or compare us unfavourably with other countries. The Prime Minister will take action to protect this economy, and he will also work with the other European countries to ensure that international action is taken. It could possibly be said that, in that respect, he is a man with a plan.

Tom Harris: Fifty-five thousand members of RAF Bomber Command lost their lives in world war two, yet today there is still no national memorial paying tribute to the sacrifice made by those brave men and women in defence of our nation. Will my right hon. and learned Friend join me in supporting the RAF Bomber Command memorial fund as it seeks to raise £2.5 million for such a memorial, and will she ensure that the Ministry of Defence consults the memorial fund properly before finally deciding on a location?

Harriet Harman: I can give my hon. Friend the assurance that I will see that the Ministry of Defence thinks very carefully about that request, and looks favourably on it. We must ensure that we recognise and continue to pay tribute to those who, like the 55,000 whom he mentioned, have paid with their lives for this country.

Vincent Cable: How really prepared are the Government to deal with the hundreds of thousands of people who are now losing their jobs, given that they have just completed a massive cut in the staff of benefit offices and jobcentres? While the two measures that the right hon. and learned Lady has announced today are very welcome, can she give us an absolute assurance that people approaching those services in search of financial help and emergency loans—which does not mean waiting for 13 weeks—will be dealt with promptly, efficiently and sympathetically, as the bankers were this week in their hour of need?

Harriet Harman: The hon. Gentleman is absolutely right. The action taken in respect of the banks was taken not just for the sake of the bankers, although the financial services industry is a large and important employer, but so that we could get credit flowing back into small businesses and the housing market.
	The hon. Gentleman asked an important question about the services and support that will be given to people—not just talked about—when they face the awful prospect of being without jobs. I would say that there are improved and increased services for each individual from the Department for Work and Pensions, not just as a result of the important work of Jobcentre Plus, but in the private and voluntary organisations that work alongside people who have lost their jobs to ensure that those people have the skills and the confidence to obtain their next jobs.
	We are not complacent about today's job figures, which are definitely very concerning, but there are still 600,000 vacancies in the economy.

Vincent Cable: I welcome those latter comments, but I sense that the Minister does not realise that there is a very real emergency. Given that there is that very real emergency, why do the Government—and also the Conservatives—insist on this absurd monastic vow of silence that means never even talking about interest rates? There are millions of people out there worrying about their homes and their businesses, and clamouring for a deep cut in interest rates to prevent this recession from turning into a deep slump.

Harriet Harman: I do not accept the hon. Gentleman's assertion about the Government's unpreparedness. The Government worked for a number of weeks to ensure that we could take action to stabilise the banking system, and that is what was announced to the House on Monday. The purpose was to ensure that money was lent to small businesses so that they could continue to flourish and play the part that they play in the economy, and continue to employ people.
	I do not really know what the hon. Gentleman is talking about in relation to interest rates. There was an interest rate cut last week, and it was co-ordinated with other central banks across Europe and in America.

Charlotte Atkins: Many of my constituents are very grateful for the decisive action taken by the United Kingdom Government following the collapse of the Icelandic banks, but what will the Government do for the charities that have funds in Icelandic banks? Will they protect those funds? My constituents depend very much on the charities that protect the most vulnerable in our society, and need their support in these difficult times.

Harriet Harman: My hon. Friend makes an important point, and I think that all hon. Members are concerned about charities and the effect on them of the collapse of the Icelandic financial services industry. Small charities will get the same protection as individuals; they will get 100 per cent. protection for their deposits. We are taking steps to protect larger charities by freezing the assets of the Icelandic banks and by lending £100 million while the unfreezing of those assets is sorted out. Treasury officials have been sent to Reykjavik to try to ensure that the situation is resolved, and the Minister for the Cabinet Office has met the leaders of the charitable sector. He has issued a written statement, and he will keep the House updated.

David Burrowes: Given the bail-out of depositors in Icelandic banks, will the Government now compensate Equitable Life policyholders?

Harriet Harman: The action we have taken in relation to the financial services system has not just been to protect individuals, important though that is, but also to ensure that there is not a whole-scale loss of confidence in the entire banking system. We have been concerned to address not only individual loss, but systemic failure.

Lindsay Hoyle: My right hon. and learned Friend must be aware that the biggest concern among families, pensioners and businesses is how they will pay their fuel bills. I wonder what we can do, and what good offices my right hon. and learned Friend can employ, to ensure that we sit the greedy energy companies down, with their immoral profits and obscene earnings, and bring prices down to ensure that families can pay their bills this Christmas. We have taken measures for the longer term, but what can we do to help them in the short term?

Harriet Harman: My hon. Friend is right that we need action not only by the Government—and we are taking that action—but by the energy companies. He is also right that increased fuel bills hit hardest those who can least afford it. We are taking action. As he knows, we have increased the winter fuel allowance for pensioners, and we have also set up a home insulation package. We expect the falling oil prices to feed through into gas and electricity prices. While the Government will play their part, we know that the eyes of everyone in the House, as well as those of the Government, will be on the energy companies to make sure they play their part too.

Crispin Blunt: Just as the Chancellor changed the regulatory framework for the banks when he came into office, which contributed to this crisis, the Government's regulatory oversight of Equitable Life has been seen as partly responsible for the circumstances that many constituents of all hon. Members find themselves in. What are the Government going to do about Equitable Life?

Harriet Harman: It is quite wrong for the hon. Gentleman to say that the Government must take responsibility for a financial banking system crisis whose origins clearly were global and whose impact has also been global. On regulation of the financial industry, the hon. Gentleman might remember that there were seven regulators before we set up the Financial Services Authority, and it was very important as part of improving regulation to bring them all into that one regulatory body.

Bill Olner: Is my right hon. and learned Friend aware that the 2009 European interparliamentary space conference will be held in this Parliament next autumn? Will she support this unique opportunity to showcase Britain's high-growth, hi-tech space industry, and, crucially, in terms of next month's European Space Agency meeting, will she express support for the UK Government's stance on the efforts of the UK space industry to tackle the climate change agenda and the reduction of poverty in Africa?

Harriet Harman: My hon. Friend makes an important point. The space industry is important. It is in the forefront of science and scientific jobs, and I wish it success with its conference—and perhaps I may express the hope that the summit will boldly go where no summit has previously gone.

Philip Davies: Many of my constituents at Bradford & Bingley and other local businesses face a very uncertain future. Given that the Prime Minister egged on the housing bubble and the economic bubble by claiming that he had personally ended boom and bust, and given that it was his tripartite system of regulation that failed so spectacularly, will the Government take any responsibility for the economic problems that my constituents are facing?

Harriet Harman: I do not accept that the economic crisis that has currently hit this country is the responsibility of the 1 million extra home owners in this country. I do not accept that for a moment. The hon. Gentleman should recognise that the economic circumstances that face this country, although they are national in their impact, are global in their origin.

Jim Devine: As my right hon. and learned Friend knows, the minimum wage rose to £5.73 on 1 October. How many people will benefit throughout the United Kingdom from that increase, which is another great achievement by this Labour Government? Is she aware that on the day of the vote on that, the Scottish National party did not turn up?

Harriet Harman: I welcome my hon. Friend's drawing the attention of the House to the national minimum wage increase this month. I understand that something like 90,000 people in Scotland will see their pay go up as a result of the rise. The minimum wage is important for Northern Ireland, Scotland, Wales and the whole of England, and we have no intention of letting it wither away. When it comes to difficult economic times, those on low incomes will get help, and I think we can expect those on the highest incomes to show restraint.

Gregory Campbell: We are undoubtedly facing uncertain times right across the United Kingdom. Does my right hon. and learned Friend agree with me, my colleagues and many people in Northern Ireland that we face an additional problem? Under the devolutionary arrangement that we currently have, many Departments have packages in place that will help people through the problems that we will face over the winter and in the next year, but they are being blocked from using them because of the activities of Sinn Fein.

Harriet Harman: My right hon. Friend the Secretary of State for Northern Ireland reminds me that the Executive need to meet and devolution of policing needs to take place. The Secretary of State is a member of the National Economic Council, and therefore the question of the economic impact on Northern Ireland is very much in the Government's mind.

Clive Efford: Can my right hon. and learned Friend give an assurance that the money that has been invested in the banks will not be at the expense of investment in public services? People such as pensioners, parents with children in schools, patients of the NHS and public sector workers will be concerned that the money that we have invested to rescue the country from the excesses of the masters of the universe must not come at the expense of those services. Can she give that assurance?

Harriet Harman: I can give that assurance. The Prime Minister and the Chancellor have said that it is important that we carry on with crucial public investment, and the uprating of benefits and pensions will happen in the normal way.

Richard Benyon: When we hear that Northern Rock has passed just one tenth of last week's interest rate cuts on to its mortgage holders, does the Leader of the House not feel that we need more assurance that the billions that have been spent on the bank bail-out will trickle down to where they are needed—small businesses that want to borrow at affordable rates and people who are worried about the roof over their head?

Harriet Harman: The hon. Gentleman is right to draw attention to the whole point of this Government action. It is not for its own sake but actually for the results that it will achieve. We are determined, and indeed agreements have been entered into, that credit will start flowing again to small businesses and to the housing market, in order that we can stabilise the economy and see it through this difficult time.

Albert Owen: I concur with the sentiments expressed by my hon. Friend the Member for Chorley (Mr. Hoyle) in an earlier question. With electricity prices reported to be four times higher in the United Kingdom than in France, and with the impact that that has on UK businesses and particularly on energy-intensive users, does my right hon. and learned Friend agree that one way to bring prices down is to increase capacity? The best way to do that is to extend the lives of existing generators, including safe nuclear power generators. Will she urge her Cabinet colleagues to do that, to ease the burden on British business?

Harriet Harman: Obviously, we need to ease the burden on British business in the way that my hon. Friend describes, as well as to assist businesses with energy conservation and to step forward with the programme for investment in renewables.

Adam Price: The right hon. and learned lady had the honesty to admit during her campaign for the deputy leadership of the Labour party that the Government had made a mistake over the war in Iraq. Does she think that the public are owed a similar apology over the failures in policy and weakness in regulation that have contributed to the current economic crisis?

Harriet Harman: What we owe to the people in Iraq, to the other countries alongside which our soldiers are working and to our armed forces is to work to ensure that we have stability and peace in Iraq, so that Iraq can take over its own security and policing as soon as possible and our troops can then come home.

Tom Levitt: Whatever outrageous fortunes the global economy may blow our way, will my right hon. and learned Friend commit herself again to this Government's aim of eradicating child poverty by 2020 and confirm that that commitment will not be violated?

Harriet Harman: We remain absolutely committed to eradicating child poverty, and we hope that both sides of the House will support not only that commitment, but the measures necessary to achieve that aim.

Rape (Defences)

Harry Cohen: I beg to move,
	That leave be given to bring in a Bill to amend the Sexual Offences Act 2003 to prohibit the use of a defence of sleepwalking in proceedings relating to the offence of rape; and for connected purposes.
	I think of this as my rape and sleepwalking Bill, because it deals with what has become a loophole in rape law. My Bill says that it shall not be a defence for a defendant accused of an offence of rape to claim that he was sleepwalking or suffering from non-insane automatism or other similar condition when the offence was alleged to have taken place.
	This matter came to my attention during a Select Committee on Work and Pensions visit to Australia to obtain evidence for our excellent carers report. During the stopover at Hong Kong airport, I was reading in an Australian newspaper of an ongoing court case where the defendant, Leonard Spencer, was claiming as a defence for rape that he had been sleepwalking. I thought, no chance! To my amazement, on the journey back I saw a report in  The Australian on 16 May that he had been acquitted on those grounds and that it was the first time in an Australian court that "sex-sleep" had succeeded as part of a defence.
	The article said:
	"It is not hard to imagine that more cases will come to light, as defence lawyers ask clients facing sex charges: 'Do you have any strange episodes in your sleep?'
	It should be pointed out that Spencer's lawyer, Jon Tippett QC, did not ask his client any such leading questions. It was the police, curiously, in what seemed a throwaway question, who asked Spencer whether he had sleep issues.
	Spencer, who was on medication for depression, replied that he did."
	From then on, the sexsomnia angle was played strongly through the trial. The article continued:
	"Spencer did not deny being in the woman's bed. The defence argued that he did not remember being there. A person cannot be found guilty if there is no intent involved. That's why the sleeper defence is a ripper."
	I was then astonished to see not only that the defence had been used internationally—the 2005 judgment of a Canadian man, Jan Luedecke, is one sexsomniac acquittal—but that the cases of two British men were also referred to. The first was that of London man James Bilton in 2005, and the second was from 2007, when RAF mechanic Kenneth Ecott was acquitted of raping a 15-year-old girl despite admitting to having committed the act. Some experts now think that those cases have set a precedent in the law.
	I sought a House of Commons Library briefing on the subject, and it brought my attention to several other cases. In 1994, Robert Burnett, a prison officer from Newcastle upon Tyne, was found not guilty of attempted rape after the court accepted that he was sleepwalking at the time. In 2006, Terry Hind, a gay race trainer—I am not sure what that is—committed a sexual assault on another man in Scotland when sleepwalking and the jury gave the verdict of "not proven", which is part of the Scottish law. In 2006, Christopher Davies initially denied and then admitted sexually assaulting a woman, but was found not guilty because he was sleepwalking at the time. In 2007, David Pooley, a former RAF corporal, was found not guilty of rape after he successfully proved that he was suffering an episode of parasomnia, which can include sleepwalking.
	The law provides defences of insanity and non-insane automatism. The distinction between the two is crucial. According to English criminal law, the former requires a disease of the mind and is decided on the balance of probabilities. When it results in a not guilty criminal verdict, other powers can be invoked, such as the provisions under the Mental Health Act 2007. In the cases of non-insane automatism, the onus is on the prosecution to exclude it beyond reasonable doubt, or the result is an outright acquittal. My Library briefing says:
	"English law lacks a satisfactory method of dealing with defendants who, although lacking fault, pose a potential threat to the public...The law in this area was described in 1973 as a 'quagmire' and recent cases have only made matters worse."
	As I have said, automania is increasingly being used as a defence in rape cases in the UK, Canada and Australia, and defendants are being acquitted. There must now be serious doubt that the Crown Prosecution Service would bring such a case to court if it thought that that defence would be used, as it has become extremely difficult to get a conviction.
	Just 6 per cent. of rape cases result in a conviction and such loopholes make a conviction even harder to obtain. That is a harsh injustice to the victims of rape and treats that serious crime as though it is of little consequence in the legal system. I think that the loophole has widened following recent cases. My briefing said:
	"Automatism...is a complete defence (unless it is self-induced, for instance by voluntary taking of drugs and alcohol). In a couple of the recent cases, prior consumption of alcohol was admitted but the juries still deemed it not a factor in accepting the automatism defence."
	There was one case of extreme violence back in 1991—the case of Burgess. The expert medical opinion presented evidence that sleepwalking was a mental abnormality and could deem the defendant legally insane. The judge accepted that, but the series of more recent cases to which I have referred have overridden that decision as far as rape is concerned. Rape is obviously not deemed to be serious enough. My Library briefing says that English law lacks a satisfactory method of dealing with defendants who, although lacking fault, pose a potential threat to the public, and the court will have a sentencing discretion including absolute discharge, guardianship and supervision only if a disease of the mind is established.
	The law in this area is a case of political correctness gone mad. I think that it defies common sense. Sleepwalking is not a reasonable excuse for rape that should lead to acquittal. Dr. Cosmo Hallstrom, a fellow of the Royal College of Psychiatrists, has said:
	"People do sleepwalk and they do strange things in their sleep, but it usually is no more complex than grinding the teeth or smacking the lips—at most they may get up and make a cup of tea. I would think it was extremely difficult to perform such a complex manoeuvre as having sexual intercourse while asleep—especially if the other person is unwilling".
	Let us tackle the issue of intention. Lord Denning explained that no act is punishable if it is done involuntarily. In this context, an involuntary act—some people prefer to speak of it as automatism—means an act that is done by the muscles without any control by the mind, such as a spasm, a reflex or a compulsion. However, that does not apply to the hundreds of thousands of people up and down the country, including some of my constituents, who do not pay some of their bills unintentionally. They may not have the money or they might have lost the documents, but they do not have non-intentionality as a defence. Its main application seems to be to rape laws.
	Victims in all the cases that I have referred to and which have led to the sleepwalking acquittal have told of the perpetrator being rough and violent. A rapist, whether sleepwalking or not, is a danger to the public, most often to women, and acquittal is not acceptable. It is not right that the rapist walks free. If a rape has been committed, a guilty verdict should be delivered. The judge should then decide the sentence based on consideration of the factors, but a rapist sleepwalker should be deemed a danger to women and not allowed to walk away scot-free.
	I am concerned about the current legal precedent. Anybody up in court on a rape charge could get a few friends and family to claim that he sleepwalks, and he will almost certainly get off. Rape is traumatic and damaging to the victims. As well as suffering the physical assault, they also suffer emotionally, often taking on the guilt of feeling that they cannot get justice. Women often say that only after a conviction can they properly absorb the fact that the rape was not their fault. That is why the 6 per cent. rate of successful prosecutions is so appalling. There is a general feeling among women that reporting rape is a waste of time, and that the process is horrendous. There is certainly a substantial level of non-reporting. In these days of DNA testing, a successful prosecution rate of less than 6 per cent. shows a criminal justice system that is not trying.
	The organisation Women Against Rape has issued a press release in support of the Bill, but it also draws attention to an even bigger loophole: the defence of belief in consent, which invariably is based on an assault on a woman victim's sexual history. I wish that I had more time to go into it, but that is a crucial loophole that causes women to come under attack again, and it needs to be closed.
	The system is also very poor in dealing with the complaints process, which is very badly administered. All of that needs to be addressed properly if rape cases are to be taken seriously in this country.
	 Question put and agreed to.
	Bill ordered to be brought in by Harry Cohen, Mrs. Linda Riordan, Ms Dari Taylor, Siobhain McDonagh, Joan Ryan and Chris McCafferty.

Rape (Defences)

Harry Cohen accordingly presented a Bill to amend the Sexual Offences Act 2003 to prohibit the use of a defence of sleepwalking in proceedings relating to the offence of rape; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 17 October, and to be printed [Bill 153].

SUPPLEMENTARY ESTIMATE, 2008-09

HM Treasury

Motion made, and Question proposed,
	That, for the year ending with 31st March 2009, for expenditure by HM Treasury—
	(1) further resources, not exceeding £1,000, be authorised for use as set out in HC1061, and
	(2) a further sum, not exceeding £42,200,000,000, be granted to Her Majesty out of the Consolidated Fund, to meet the costs as so set out.— [ Mr. Timms. ]

Stephen Timms: The purpose of this motion is to provide repayment of recent advances from the Contingencies Fund, and resources for the recapitalisation programme announced in recent days. It introduces an out-of-turn supplementary estimate for Her Majesty's Treasury to allow the repayment of the £4.6 billion advanced from the Contingencies Fund on Monday 29 September relating to Bradford & Bingley, together with the £600 million advanced on Wednesday of last week relating to UK subsidiaries of Icelandic banks. It also provides for the £37 billion announced by my right hon. Friend the Chancellor on Monday of this week for bank recapitalisation.
	The House knows of the current situation in the financial markets, and it knows that we have acted quickly in recent weeks to support the depositors of Bradford & Bingley, and of the two Icelandic institutions, Kaupthing Singer & Friedlander and Heritable.

Peter Bone: On a small technical point, the Minister has introduced the main provision, but he has not mentioned the increase in resources. Is he sure that the increase will be enough to cover what is proposed?

Stephen Timms: Yes. As I have set out, we are doing two things under the motion: we are replenishing the Contingencies Fund, which has been used for Bradford & Bingley and the Icelandic banks, and providing the resources for the banks' recapitalisation. I will give a little more detail about that in a moment.
	In the case of Bradford & Bingley and the Icelandic banks, we took action on the advice of the Bank of England and the Financial Services Authority to secure stability in the financial system. The action that we have taken demonstrates clearly the Government's commitment to doing whatever is necessary to ensure stability, while protecting consumers and safeguarding the interests of the taxpayer.
	Sometimes, expenditure is so urgently required that it cannot wait for the voting of provision under the normal Supply procedure. That is why the Contingencies Fund was put in place. I hope that the House will agree that on the occasions when the Contingencies Fund has been used, it has clearly been appropriate to do so. The Contingencies Fund is limited by statute to 2 per cent. of the total amount released as cash from the Consolidated Fund in the previous year—that is, the total of all net cash requirements. On that basis, some £8.1 billion was available in the Contingencies Fund at the start of the financial year. The advances that we have drawn from that fund of £4.6 billion and £600 million leave the fund at a low level, in historical terms. That does not take account of any further call that Departments might need to make on the fund, as they sometimes do.
	In the normal course of events, the Treasury would present any winter supplementary estimate in the middle of November, alongside the supplementary estimates of other Departments. The passage of the related Appropriation Act would follow in December, with Royal Assent taking place in the middle of December. Only once all stages had been completed in both Houses would the advance be repaid to replenish the Contingencies Fund. This motion allows us to restore the level of the Contingencies Fund now, so that it stands ready to be used again if required.
	As the House knows, over the weekend we negotiated with the banking sector a £37 billion recapitalisation package. This supplementary estimate also provides the Treasury estimate for that spending. Clearly, at £8.1 billion, even the resources of the Contingencies Fund are insufficient for that package. We are taking this opportunity to ask Parliament's approval for that spending, rather than waiting for the normal supplementary process in December, because expenditure may well need to be incurred before the middle of December, when Royal Assent would be obtained.
	Finally, Her Majesty's Treasury is seeking a token £1,000 increase in resources to indicate the change to the Treasury's ambit. Elsewhere, we set out what the money can be spent on. That is perhaps the point that the hon. Member for Wellingborough (Mr. Bone) raised. It is a token amount. The remit has been expanded, as it needed to be to cover support to the financial sector of the kind that my right hon. Friend the Chancellor announced. It is normal, albeit perhaps slightly arcane, procedure to present token increases when ambits change in such a way. I commend the motion to the House.

David Gauke: I am grateful to the Financial Secretary to the Treasury for setting out the purposes of the motion. As he says, essentially it enables the Government to restore the money in the Contingencies Fund, following the expenditure in relation to the recapitalisation of Lloyds TSB, HBOS and the Royal Bank of Scotland, and in relation to Bradford & Bingley and the Icelandic banks.
	Of course, we on the Conservative Benches support recapitalisation of the high street banks, which accounts for the majority of the funding, and we recognise the particular issues relating to the Icelandic banks and Bradford & Bingley. We have said throughout that we are keen to work on a bipartisan basis. None the less, this is a huge expenditure and it is right that we have an opportunity to scrutinise and question it.
	Several of the questions that arise have not been answered as fully as they might have been, and I shall raise some of them with the Financial Secretary. I appreciate the prudence of the Government in seeking to restore the Contingencies Fund now rather than waiting until December, but it might be helpful if the House had the answers to some of our questions, so that we know where taxpayers' money will go. The sums are huge—£42 billion will double the borrowing that the Government previously proposed—and we need to know how it will be accounted for. The US had lengthy debates on these matters, although we do not want a repeat of the uncertainty that they created. In any case, we work on a different basis in the UK, but it is right for the House to have an opportunity to ask some questions.
	We need further clarity on the issue of the Government's acquisition of ordinary shares. When the Chancellor made his statement on 8 October, on the banks that would qualify for the recapitalisation provided by the taxpayer, it looked as though the investment would be made through preference shares. The Chancellor set out his priorities and said that £25 billion would be used to acquire preference shares. He stressed that those would rank above ordinary shares and have better protection against future losses. It was also made clear that further capital would be made available, and I acknowledge that he recognised the possibility of the acquisition of ordinary shares. However, the Treasury memorandum made it clear that the Government will acquire £28 billion of ordinary shares in RBS, HBOS and Lloyds and £9 billion of preference shares. That is a substantial change from what was envisaged on 8 October.
	On 13 October, the Chancellor explained this by saying:
	"Given the scale of what is necessary...the balance"—
	between ordinary and preference shares—
	"has to be struck in a way that is workable...if too many preference shares were put into an organisation it would impede its ability to get through this period and recover".—[ Official Report, 13 October 2008; Vol. 480, c. 544.]
	He added that he was acting on proper advice. That is clearly a change in approach and it would be helpful to the House to hear an explanation of that change. Is it the fear that the deal will involve no dividends until the preference shares are paid off, so that would have an adverse effect on the share prices of banks? Or is it, as  The New York Times suggested, that the banks' memorandums and articles did not allow the issuing of enough preference shares to boost the banks' capital ratios to the required levels? The Chancellor referred to proper advice, and it might be helpful if the House could see that advice. That change has put the taxpayer in a different, and arguably worse, position. I am willing to be pragmatic about this issue, but we need to know the reason for the switch.
	Each bank is paying a 12 per cent. interest rate on preference shares. It has been argued in newspapers and elsewhere that the risk profiles of the three banks are different. Given the scale of the investment in RBS compared with Lloyds TSB, and the different risk profile, why was the same interest rate required?
	Another change in approach seems to have occurred in relation to board representation. On 8 October the Chancellor said:
	"In relation to Government nominees sitting in boardrooms, I never thought that a particularly useful course of action to follow".—[ Official Report, 8 October 2008; Vol. 480, c. 286.]
	Now we will have five members on bank boards. I do not necessarily disagree with the proposal, but it would be helpful to know why there has been a change in approach. Will it be their role to enforce the various conditions imposed on the banks by the Government? How will those directors work, given that the Government are keen to have an arm's length relationship with the banks? Will the Government directors serve on the remuneration committees, for example? The remuneration policies of banks are causing concern, but it is a particular issue for banks that are partially nationalised. We know that cash bonuses will be curbed, but I hope that the Financial Secretary can provide greater detail on the Government's attitudes to share options for senior and not so senior bank employees.
	Confusion has also arisen over lending conditions, as my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) said at Prime Minister's questions. The Treasury statement on 13 October stated:
	"The banks have agreed to maintain the availability of loans to homeowners and small businesses at 2007 levels."
	We recognise that the purpose of the intervention is to unfreeze the lending market, but does that mean that the Government wish to maintain the same level of borrowing as in 2007? They appear to have backed down from that and now place great stress on the word "availability", but do they envisage that the partially nationalised banks should offer the same types of products as were offered in 2007? Will we see the return of 125 per cent. mortgages, for example? After all, 2007 was part of the age of irresponsibility—to coin a phrase. Do the Government really intend a return to those times? I suspect that it was merely spin, but it puts the Government in an awkward position. They are either guilty of spin or guilty of encouraging a return to irresponsibility. Which is it?

Peter Bone: My hon. Friend is making a powerful speech, but is not the situation even worse? Term 6 of the share placing agreement talks of lending at "at least" the level of 2007, which suggests that the level should be even greater.

David Gauke: I am grateful to my hon. Friend for pointing that out. It is further suggested that those levels should be maintained for three years. The Government are trying to retreat from that statement as quickly as they can, and the stress is being put on availability and marketing activity. However, greater clarification would be helpful. We welcome the unfreezing of the credit market as that would be helpful, but a return to 2007 levels would be grossly irresponsible.
	Earlier today, the Leader of the House referred to trying to re-establish reasonable rates for lending to small businesses and households, but that is not how the policy was presented earlier this week. There is clearly some confusion, which brings into question whether the Government appreciate some of the lessons that they should have learned from 2007 and before.
	On the treatment of home owners, the Treasury statement of 13 October said:
	"As part of its investment, the Government has agreed with the banks supported by the recapitalisation scheme a range of commitments covering...support for schemes to help people struggling with mortgage payments to stay in their homes".
	We recognise and appreciate that point, but we must bear in mind the case of Northern Rock, which has been nationalised for some time. From December 2007 to June 2008, the percentage of its properties in possession increased from 0.29 to 0.56 per cent. That is a substantial increase, and it is particularly striking compared with the 0.16 per cent. figure for properties in possession for mortgaged homes as a whole. Again, clarification would be helpful. Will the partly nationalised banks, and in particular their mortgage arms, take an aggressive approach to repossessions? Is it the intention that they will take a more generous approach than the market as a whole, or will they, like Northern Rock, take a more aggressive approach? Again, it would help the House if we had further details.
	Earlier, I touched on the implications for the public finances of those items of expenditure, and I ask again how the Government anticipate that that expenditure will be treated. Will it be treated as borrowing, and will it be treated as part of the public sector net debt? We know that the Office for National Statistics will make a determination on that point, and it looks likely that the expenditure with regard to the high street banks will be treated in such a way. If that is the case, public sector net debt will be at around 50 per cent. of GDP, a percentage which it has not reached since 1976. Where will that leave the sustainable investment rule? We debated that matter last week in the House of Commons, and it appears that the sustainable investment rule has been blown out of the water. The Government were likely to breach the rule notwithstanding Northern Rock—if one includes Northern Rock, they are already in breach—and these particular measures. The sustainable investment rule appears to have been broken. Have the Government abandoned it? It is about time that this House knew the answer.
	Have the Government made any assumptions on when the preference shares will be paid off? Have they made any assumptions on when they will be in a position to dispose of the ordinary shares? I appreciate that no precise answer can be given, but are they working on any assumptions at all? Given that we are discussing very substantial items of expenditure, how will that expenditure be accountable to this House? Will we have an opportunity to review, debate and, if necessary, vote on any progress in reducing the level of preference shares and ordinary shares? What opportunities will there be to debate particular policies pursued by banks in the light of their partial nationalisation, over and above the usual methods such as Treasury questions?
	On the Icelandic banks, the supplementary estimate refers to £600 million, which relates to the payment to ING under the Transfer of Rights and Liabilities to ING Order 2008. That relates to the transfer of retail deposits of Kaupthing, Singer and Friedlander and of Heritable, as the Financial Secretary has mentioned. As far as I know—I am willing to be corrected on this point—this is the first time that this House has had sight of that figure. The Financial Secretary will correct me if I am wrong, but the figure of £600 million has certainly not been referred to very frequently. We have frequently heard about the £100 million loan—indeed, the Leader of the House referred to it earlier today—but the £600 million figure is new. If it is possible to obtain more details about what that involves and how the Government hope to get their money back—if, indeed, they hope to get their money back—we will be grateful. Equally, on the figure relating to Bradford & Bingley, more details about when and how the Government intend to get their money back would be appreciated.
	We all agree that the financial crisis is extraordinary. Some Labour Members, not many of whom are present in the Chamber today, view the measure as a triumph for the Prime Minister. We do not view it as such, although we have been prepared to work with the Prime Minister and the Government to address particular concerns. Finally the bills for the Brown boom have had to be paid. For years, the Prime Minister declared at every opportunity that there would be no more boom and bust. In an interview in the  Daily Mail at the weekend, he said:
	"I actually said, 'No more Tory boom and bust'".
	There are a number of ways one can take that comment. I do not know whether it meant that there would be no more Tory boom and bust because instead we would have Labour boom and bust, or whether he really thinks that he said that. I cannot explain that comment.
	The facts that the UK was so badly prepared for the financial crisis, that the regulatory system was unable to cope with this bust and that the public finances are woefully unprepared for this downturn suggest that maybe the Prime Minister believed throughout the 10 years when he was Chancellor that there would be no return to bust, whether it was Tory bust or any other kind of bust. That is deeply disturbing, because it means that he believed he could defeat the business cycle, which has existed for ever. The consequence of that was enormous complacency. No attempt was made to use the good years to prepare for bad years; no attempt was made to fix the roof when the sun was shining. We have been left in a terribly vulnerable position in which we are more exposed than almost any other economy in the world to a global economic downturn with inflation at three times the level of '97, with unemployment rising at a faster rate than at any time in the past 17 years and with the public finances in one of the worst positions of any particular economy in the world. No more boom and bust—if only it were so. Today, we are paying the bills.

Vincent Cable: I realise that the narrow issue of the supplementary estimates is a peg for discussing some of the wider financing issues around it. A great attempt is being made these days to portray good news, but the idea that we are buying out the banking system for £1,000, as the Minister seemed to suggest in his introduction, stretched things a little far. None the less, there is good news as far as it goes.
	This issue is important because it leads us from the complicated issues of the banking bail-out to the wider question of how that affects public finances and how the market perceives the state of public finances. At the moment, markets in Britain, the United States and elsewhere trust Government paper but not the paper of banks and other financial institutions. Perhaps that is a reflection of how we see Governments—perhaps more positively than has historically been the case. None the less, there are limits to the extent to which the markets will absorb Government paper.
	Although in the current environment it is possible to float gilts at attractive terms, there will obviously be limits to that. In the spectacular case of Iceland, not only the banks, but the country—the Government—have gone bust. Its creditworthiness as a country no longer has any credibility. Of course there is a vast difference between Britain and Iceland, but equally there is a vast difference between Iceland in October and Iceland in April; its position deteriorated very rapidly, and we need to be careful that the same does not happen here. In addressing that issue, we must focus on how these vast public liabilities, of different kinds, are to be represented in terms of public presentation and the relationship to public debt.
	Yesterday I read two rather obscure articles in the financial pages. They were not an attempt to talk up the drama around the public debt figure, but one of them suggested that the whole £500 billion aspect, rather than the £50 billion aspect, of the bail-out should be covered in the public debt. I do not know the statistical or financial basis for arguing that, but if the £500 billion—the contingent liabilities around underwriting inter-bank lending—were to be treated as public debt, we would be talking about 100 per cent. of GDP, not 40 or 45 per cent.
	Quite independently, a separate article argued that there was a case for treating the liabilities of the Royal Bank of Scotland as public debt; that would add another staggering sum and, independently of the first point, take us up to about 100 per cent. of GDP. If we add the two together, we get up to 150 per cent. of GDP. Those are rather meaningless numbers, but somebody needs very quickly to produce a proper, accurate and transparent assessment about what the public liabilities are.
	One of the lessons that we have learned—the banks certainly have—is a hatred of uncertainty, which causes panic and loss of confidence. We therefore need a completely open statement about what the various Government liabilities are, including the ones to do with public sector pension liabilities, the private finance initiative and the rest of it, which we have endlessly debated in the past. We need an open, transparent statement about the different components of the liabilities that the Government are now taking on—some are direct stakes, some are guarantees and so on—so that the markets can make their own assessment.
	I do not believe for one moment that there is any imminent danger of the Government breaching their debt ratio to the extent of people calling into question the value of Government bonds, but the Government need to be careful. This is partly a presentational issue, about how we present statistics; I hope that the Government will apply themselves to that.
	I have little to say on the substance of the bank bail-out; we have had plenty of opportunities to discuss it, including yesterday. However, simply because it is relevant to the specifics of the supplementary estimate, it is worth drawing attention to the fact that Bradford & Bingley shareholders are on the march. I had an altercation with one of them on the radio this morning; they clearly intend to go for litigation with the Government to find out why they have effectively been wiped out when the share prices of other banks a few days later, although badly depreciated, have had the chance to recover. I did my best to defend the Government's position but they are going to find themselves in court to offer an explanation, which will be tricky.
	The other issue specifically raised by the supplementary estimates is the Icelandic banks. My hon. Friend the Member for Somerton and Frome (Mr. Heath) wishes to say something about that from councils' point of view. I want to raise the broader policy issue. The problem arose because the Icelandic banks could be passported through the European economic area rules. I do not think that anybody saw this coming, but there is a slightly odd arrangement in which there is a claim on the host country following that of the home country. I assume that the Icelandic banks made no contribution to the British financial services compensation scheme. Some have posed the question of whether we should now seek a change in the European Union regulations to make sure that when EEA banks act here, they are fully part of and covered under the financial services compensation scheme and therefore make full contributions to it. Does the Minister have any views on whether such a regulatory change would be helpful?

Peter Viggers: I could not contribute to the debate yesterday for the agreeable reason that I was at Buckingham palace, so I welcome the opportunity to make a brief contribution today.
	This banking crisis did not emerge from old-fashioned banking at all; it emerged from the kind of banking, known in the trade as "originate to distribute", that has developed in recent years, whereby banks put together packages of securities and then pass them on to each other in collateralised debt obligations, or CDOs, which have proliferated and become far more complicated. The amounts involved are enormous. The derivatives are inter-traded and cut in different ways; the original asset may go through many different manifestations and changes before it eventually ends up in the book of one bank. It has become a matter of enormous complication and vast financial implications. No bank can be completely confident that the asset that it holds is sound; all banks are contaminated to a greater or lesser extent by loans or investments that they may not be able to recover. All banks are toxic because of the massive amount of inter-trading that has taken place.
	There is an urgent need accurately to identify each bank's assets and liabilities. The issue has to be resolved because most businesses, large or small, depend on bank gearing and bank borrowing to a greater or lesser extent. Most businesses have bank loans or facilities, many of which are not being rolled over. Many smaller businesses in particular are being offered much less advantageous terms; banks that had been borrowing at 8 or 9 per cent. are finding that their facilities are being reoffered or not offered at all. If they are being reoffered, it is happening at about 15 per cent. Moreover, all trade depends on bank facilities; goods in ships may not be unloaded and sent on to their ultimate destination unless the bank facilities for their transit are available. Something must be done.
	In many ways this situation is unprecedented, but it is not completely so. A week ago, I drew attention in the House to the fact that what evolved at Lloyd's of London in the 1990s is a close analogue to the current situation. I became an underwriting name at Lloyd's in 1972. In 1989, when I ceased to be a Minister, I could see that things were going wrong at Lloyd's. I could come out of Lloyd's, stay there and worry or stay there and try to do something. I stood for the council of Lloyd's as an external member and was elected. I later became a member of its audit committee, so I was closely involved in the resolution of the problems in the 1990s.
	The problems were similar to the ones that we have now. I put that point to the Chancellor of the Exchequer two days ago, but he brushed it aside saying that the Lloyd's situation was very different. But it is not: it is the nearest that we have to an accurate analogue. Lloyd's syndicates were underwriting risks and passing them on by way of reinsurance. The syndicate that had reinsured would then reinsure further, and there was a whole cycle of investment and reinvestment. The problem was that the syndicates were not entirely sure what risks they were underwriting. There was uncertainty because no one knew the reliability or soundness of the risks. That situation is very similar to that in which we find ourselves with the banks now.
	Let us imagine—my comparison is a rather ugly one—that every single loan is a tiny piece of spaghetti, all the pieces are mixed up in a great big bucket, and we end up with a massive asset so that no one knows what they have got when they buy a share or slice of it. What we must do—this is the parallel that we draw from Lloyd's—is identify and isolate the unsound assets. Lloyd's created a new vehicle, Equitas, into which it transferred the unsound or questionable assets, so that it could move forward with purged units or entities that were free of the unsound or doubtful assets that were there previously.

Peter Bone: My hon. Friend makes a powerful point. Is he suggesting something similar to the American Government's attempt, in their first package, to remove toxic debt from the banks?

Peter Viggers: In fact, I thought that the first Paulson plan to inject $700 billion into the banking sector was fundamentally misconceived because it did not identify and isolate the toxic assets. Paulson suggested an investment of $700 billion in the unsound part of the market, and the money was intended mainly to acquire the assets that were known to be unsound at a price higher than market value.

Andrew Tyrie: I am listening carefully to my hon. Friend, but I wonder whether the Equitas parallel works. In that case, the toxic waste was transferred to a body that remained the responsibility of the private sector and where the liability ultimately remained with those who created it. In the case of the banks, and of the Paulson plan, it was transferred to a public body, with taxpayers being directly at risk.

Peter Viggers: I will come to the main thrust of my argument three points further down the line, if I may. Obviously, the situation is vastly complex. We have to respect Mr. Paulson's background and experience, and we must assume that he built into his plan safeguards that I have perhaps been too naive to understand. I am not saying that Lloyd's is a complete parallel and that I have the answer that nobody else understands, but I am convinced that there are lessons to be learned from the Lloyd's experience that I have not yet seen Government taking on board.
	The next point to draw from Lloyd's is that we are all in this together. The Lloyd's community realised that if the Lloyd's ship sank everyone would drown, so we had to find a way through. That leads to the need for a strategy for burden-sharing.
	My next point concerns moral hazard. We should ensure that those who took the greatest risks bear proportionately more loss. That requires an overarching strategy to identify those who took the risks to ensure that they suffer.
	Why should anyone—taxpayers or Government—invest in an institution that is known to be unsound or at least questionable? Why should not Government money—taxpayers' money; our money—be put into vehicles that we know to be sound, their having been purged of unsound or questionable risk? More needs to be done to ensure that Government money is invested soundly and that unsound or questionable assets are put into a situation of run-off so that they bear their own risks.
	My penultimate point is that there is one piece of good news. Nobody knows exactly where the risks lie, so banks and other institutions have inter-traded, with the same unsound and questionable assets being passed from bank to bank and institution to institution and carried as risks on the balance sheet of everyone who has handled them. If the questionable assets can be identified and isolated, I am certain that we will ultimately find, on adding them up, that they are the subject of double, triple or multiple counting, so the obligations are not as great as we first feared.
	Finally, I challenge the Financial Secretary to the Treasury to demonstrate to the House that the investment that is being made and the vast increase in funding that the Government propose is to be made in sound securities that in the longer term will be seen to be robust in the eyes of the taxpayer.

Peter Bone: My hon. Friend the Member for Gosport (Sir Peter Viggers) makes an extremely important point about treating the causes rather than the symptoms of the problem and removing the toxic liabilities from the banks, but nowhere is that addressed in the central Government supplementary estimate that we are considering.
	On the technical point that I raised with the Minister, I understand that the vast bulk of this is cash accounting, but if there is a resource accounting element that is not provided for, the whole thing might fall. I am sure that his officials have considered that, but I am surprised that only £1,000 was included, whereas perhaps it should have been, say, £10,000 to cover all eventualities.
	In the course of the next three hours, assuming that the debate runs its full course, we will write a blank cheque to the Government for £42.2 billion—an increase in the cash estimate for the year of nearly 10 per cent. That is an unprecedented increase in an out-of-turn supplementary estimate. During those three hours, we will have spent £234 million of taxpayers' money per minute, yet what we know of how that money is to be spent is sketchy at best. It equates to £1,361 for each and every taxpayer in the country. It is to be spent as the Government want without proper debate or consideration, and without full parliamentary scrutiny. It is like the Government taking £1,300 of our money along to the local casino and betting it on black, hoping that it will not turn out to be red. On the roulette wheel, at least one knows the odds, but in this situation we have no idea what the possible return, if any, will be for the taxpayer.
	This supplementary estimate is part of the Government's £500 billion bail-out of the banks. It is the biggest bail-out in the world so far, paid for by the biggest peacetime increase in debt. It will lead to the Government's debt rising to 50 per cent. of gross domestic product—in other words, £8,200 for every man, woman, child and baby in the country. It asks us to approve an enormous amount of borrowing to support and bail out irresponsible banks. Only now are members of the public beginning to realise just what the Government are about. I recently received an e-mail from a constituent, which I should like to read because it adds light to the situation:
	"My partner brought it to my attention about a small banking situation where she accidentally missed a credit card payment to a major bank, who is in line for government/tax payers backing. A letter was posted to her with an amended payment figure and date of 20th october, but last friday the bank was on the telephone to her, high pressure, demanding cards and payment, luckily, she is not easily scared and told them otherwise!
	My issue is, in the light of the current banking problems, and WE the public are footing the bill for the banks errors in judgment, should it be "assumed" by the banks that just because they are in dire straights, everyone else is. It is not as if my partner is an habitual late payer, it was a one off.
	I feel that these banks should be humbled to the public in some way and not come on heavy handed at the slightest opportunity. With government intervention should these issues be taken into consideration? How many other people are being submitted to this style of treatment?...Yours sincerely,
	Mark Grinter."
	We can all relate to that. Anyone who has ever run a small business will know how unsympathetic, ruthless and heavy-handed banks can be, literally putting companies into liquidation at the drop of a hat. Yet taxpayers are being asked to bail out the banks to the tune of £1,361 each.
	It strikes me that it is a duty of Parliament not to write a blank cheque, but to scrutinise the Government's proposals in much greater detail. This out-of-turn supplementary estimate is the first opportunity we have had to scrutinise the Government's banking recapitalisation plans. Indeed, it is the first time that many Back Benchers have even had the opportunity to discuss the issue. Yes, there have been a number of statements from the Chancellor, but on each and every occasion Back Benchers have been left standing. Many Members have not been able to put even one question to the Chancellor about the extraordinary amount of expenditure that we are considering in this Government supply estimate.
	Things are different in America. Full congressional scrutiny took place and the revised package was far better than the original one proposed by the Executive. But in this mother of Parliaments, no time has been allocated to debate a substantive motion on which the Government could be defeated. The Government are spending the most extraordinary amounts of our money in nationalising, or part-nationalising, certain banks. Today's three-hour debate will be the first time that many Back Benchers have had an opportunity to discuss the matter.
	I find it quite extraordinary that this week we have found it possible, on non-substantive motions, to discuss democracy and human rights, access to primary care trusts, local government and energy providers. We have had hours and hours of debate on what are no doubt important issues, but clearly they are not as important as the biggest financial crisis in 100 years, with the Government heading from boom to bust at breakneck speed.
	I might be the only Member of the House who thinks that the Government's proposals have significant flaws, and that there should have been a far more market-oriented solution, but there should have been proper thought and consultation, and detailed proposals should have been brought to this House. I am sure that if that debate had occurred, many Members would have made improvements to the package. If we pass the supplementary estimate today, the Government will be able to do what they want with £42.2 billion of our money.
	I turn to the proposed, out-of-turn supplementary estimate we are considering. As I have said, we know little detail of how the £42.2 billion will be spent. Some detail on the estimate is outlined in House of Commons document 1061, and some supplementary information was provided by the Chancellor, who placed in the Library a number of documents two days ago. It was rather difficult at the time to get hold of the documents, but they were eventually released. The documents were the preference share subscription agreements between the Commissioners of Her Majesty's Treasury and the Royal Bank of Scotland plc, between the Commissioners of Her Majesty's Treasury and HBOS plc, and between the Commissioners of Her Majesty's Treasury and Lloyds TSB Group plc. In addition, we were provided with the placing and open offer agreements between the Royal Bank of Scotland plc and UBS Ltd, and Merrill Lynch International and the Commissioners of Her Majesty's Treasury, and the placing and open offer agreement between HBOS plc and Morgan Stanley & Co. plc, and Dresdner Kleinwort Ltd and the Commissioners of Her Majesty's Treasury. We were also provided with the placing and open offer agreement between Lloyds TSB and "blank", and "blank" and the Commissioners of Her Majesty's Treasury. We have not even been told which merchant banks will be involved with the Lloyds TSB agreement.
	We know in broad terms that the estimate deals with £42.2 billion, and it is broken down as follows. RfR 1 of the supplementary estimates is entitled:
	"Raising the rate of sustainable growth and achieving rising prosperity and better quality of life with economic and employment opportunities for all"—
	a rather strange way to raise the issue of the biggest banking collapse this country has ever seen. The section "Reason for change" refers to
	"Changes relating to movements in budgets"
	and
	"Changes in annual managed expenditure".
	The detail is as follows. First, the £4.6 billion for the transfer of the retail deposit book and the branch network of Bradford & Bingley plc to Abbey National plc following the Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 No. 2546—in other words, the cost of allowing Bradford & Bingley to collapse. Interestingly, that is a totally different approach from that taken to the nationalisation of Northern Rock or the part-nationalisation of the Royal Bank of Scotland, HBOS or Lloyds TSB. There is a significant lack of consistency on the part of the Government, which was raised by the hon. Member for Twickenham (Dr. Cable). That lack of consistency has been a trend throughout this ordeal.
	Secondly, we have the £0.6 billion going to ING under the Transfer of Rights and Liabilities to ING Order 2008 No. 2666—in other words, money to protect depositors in Icelandic banks. Thirdly, and this is where we turn to the capitalisation of the banks that has been discussed in recent days, we have the purchase of shares in Royal Bank of Scotland—£20 billion broken down into £15 billion of ordinary shares and £5 billion of preference shares. Fourthly, we have the purchase of shares in HBOS at £11.5 billion, of which £8.5 billion is in ordinary shares and £3 billion is in preference shares. Fifthly, we have the purchase of shares in Lloyds TSB at £5.5 billion, of which £4.5 billion is ordinary shares, and £1 billion is preference shares. When one says that quite quickly, it does not seem to be very much, but when we think of the enormity of what we are discussing, we can see that it is quite staggering.
	I know that other Members intend to speak, so I will not comment on the £4.6 billion relating to Bradford & Bingley or the £0.6 billion relating to the Icelandic banks. I want to talk about the huge investments of taxpayers' money into the three commercial banks, and the market capitalisation of the banks. First, I would like to discuss how the capitalisations relate to the money we are proposing to inject. On 14 October, according to the Library, the market capitalisation of RBS was £10.9 billion, but we are proposing to spend nearly double that amount in taxpayers' money—£20 billion. The HBOS market capitalisation was £4.9 billion, and the proposed capital injection is twice that amount at £11.5 billion. Finally, Lloyds TSB's market capitalisation was £9.7 billion and the proposed injection is £5 billion—just over half the market capitalisation. Those are extraordinary injections of cash, which are significantly disproportionate to existing market capitalisation.
	It is not clear how we reached such low market capitalisation. The last reported profits for those banks were: RBS—£9.9 billion; HBOS—£5.5 billion, and Lloyds TSB—£4 billion. The auditors' reports on those banks included no qualification, and it appears that the auditors will have signed off the companies' assets at a much higher value than they are now worth.
	The role of rating agencies in the fiasco should also be considered, but such issues should have been properly debated before we arrived at the mega supplementary estimate that we are being asked to approve today. How can we approve a blank cheque for £42.2 billion when we do not know the true strength of the three banks to which the estimate refers? It is impossible that due diligence was exercised. The ideas seem to have been thought up on the back of an envelope during night-long meetings. The detail of the offer and subscription agreements shows the folly of that.
	Let us make a UK-America comparison. Later, I want to consider in detail the individual estimates that the various documents show, but the British Government's proposal clearly differs significantly from the American package that was announced last night. The latter is market oriented and designed to benefit the American taxpayer and the larger economy. The British Government's approach neither protects the taxpayer's interests nor allows the banks to recover—it is deeply flawed.
	There have been huge regulatory failures to control the banks over many years and a huge bubble of debt has ensued. It appears that the banks have been lending more and more debt between themselves, which has little or no value. The boom was built on debt and was therefore bound to crash. If a small prick is made in a big balloon, the whole thing will collapse. The housing market's collapse has pricked the balloon and all the financial air is rushing out. The out-of-turn supplementary estimate constitutes an attempt to put a patch over the escaping air, but it does nothing to tackle over-lending, which is the root of the problem. How could it be right to lend mortgages of 125 per cent. of the value of property? How could it be right to allow self-certified mortgages or lend five or six times a person's annual income?
	The position was made worse by the insistence that there would never be a return to boom and bust—that was the Prime Minister's mantra. That was clearly nonsense because it defied economics and trade cycles, but it encouraged ordinary people in this country to take on more and more debt because they believed that the value of their houses would always increase. The banks were happy to lend because they thought that the value of assets would always go up. The Prime Minister must accept a great deal of responsibility for that boom. The £42.2 billion in the supplementary estimate is the colossal price that we are paying for his incompetence.
	Many people will ask why we are protecting the banks and bank jobs at colossal risk when we allow other companies to go to the wall. The employees of XL travel or Travel City Direct and others in that group, who lost their jobs overnight, must wonder why they are being asked to bail out bankers. Today, it was announced that total unemployment had increased to 1,792,000—5.7 per cent. of all those economically active. Inflation is running at 5.2 per cent., which is more than twice the Government's required rate, and house prices are in a nose dive.
	All those factors form a significant background to the out-of-turn supplementary estimate. I believe that British taxpayers will be outraged if we approve the estimate today without proper and due consideration of the relevant issues. In my constituency, 1,721 people are on jobseeker's allowance: in 1997 the figure was 1,643. In Wellingborough, we have therefore already reverted to the position of 11 years ago. The unemployed in Wellingborough must be astounded at the amount of money they are effectively being asked to spend in the estimates.
	It is difficult for hon. Members and the public to accept the Government's consistently moving the goalposts. We are considering estimates, but proposals for spending the money change from day to day. I have no faith, given our limited knowledge today, that the money will spent in the way that we think—it could be spent totally differently.
	Let me illustrate the point with some of the Chancellor's statements. When he discussed the nationalisation of Northern Rock on 18 February, he said:
	"I want to set out the reasons for the decisions that I have made and to outline what the new legislation will do. Before that, let me remind the House that last September there was almost universal agreement that the Government were right to intervene to save this bank to stop its problems spreading to the wider banking system. There was also an agreement that, ultimately, the long-term future of the bank must lie in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that this could be only a temporary step—a stepping stone—to return the bank to the private sector, when market conditions made that possible... The Bill potentially applies to a range of financial institutions, but I want to make it clear that the Government have no intention at present to use it to bring any institution other than Northern Rock into temporary public ownership."—[ Official Report, 18 February 2008; Vol. 472, c. 21-2.]
	Clearly, the Government's position then was that nationalisation was a one-off—an individual, specific situation—and that the bank should be returned quickly to the private sector. It was to be a temporary stepping stone, not long-term nationalisation; a one-off, not a problem with the whole banking system.
	However, on 6 October, the Chancellor made a statement to Parliament on the financial markets. He said:
	"We need, too, to work with other countries to tackle the causes of these problems, as well as dealing with their consequences. Let me briefly remind the House of what we have done to stabilise the banking system as a whole. Since April, the Bank of England, with support from the Government, has introduced the special liquidity scheme providing funding to the banks. The Government have made available in excess of £100 billion of long-term funding to be lent through the scheme, and the Bank of England has extended it until January. I am willing to make further resources available as necessary and the Governor has made it clear that
	'In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity'".—[ Official Report, 6 October 2008; Vol. 480, c. 21-2.]
	The goalposts had been moved. The problem was no longer the temporary nationalisation of one bank but liquidity in the banking system.
	Two days later, on 8 October, the Chancellor made a statement entitled, "Financial Stability", and the goalposts were moved again. He said:
	"I also said that the Government were ready, with the resources and the commitment, to do whatever was necessary—in terms of liquidity and capital—to maintain stability in the banking system. That is why today I put forward measures designed to restore confidence in the banking system and to put banks on a stronger footing.
	There are three strands to what I have outlined today: first, to provide sufficient liquidity now; secondly, to make available new capital to UK banks and building societies to strengthen their resources and to restructure their finances, while maintaining their support for the real economy; and thirdly to ensure that the banking system has the funds necessary to maintain lending in the medium term."
	He continued:
	"The eight major UK banks have today announced that, in aggregate, they plan to increase their capital by £25 billion. Banks can raise that capital in the open market, in the usual way, or they can raise it through the newly created bank recapitalisation fund. Other eligible banks and building societies can also take part.
	Through the fund, the Government stand ready to buy preference shares in the participating banks. Preference shares rank above the stock of ordinary shareholders. The Government will receive a fixed regular payment for holding those shares and will get better protection against any future losses. In addition to that, the fund will be ready to provide at least another £25 billion of capital to strengthen the balance sheets of any interested bank. The taxpayer, therefore, will be fully rewarded for that investment."—[ Official Report, 8 October 2008; Vol. 480, c. 277-278.]
	The goalposts were therefore moved, to £25 billion of preference shares with regular dividend payments—not a direct investment in common stock, but an investment in preference stock. I could understand that logic, but the position has changed significantly in the current estimates, which are not the same as the position set out in that statement.
	The Chancellor came to the House with another statement on 13 October—his most recent statement to the House. If I read a few lines from that statement, hon. Members will see that the goalposts have moved yet again. The statement was entitled "Financial Markets".

Madam Deputy Speaker: Order. Perhaps the hon. Gentleman could do us the pleasure of giving a précis of what the Chancellor said in his statement. Lengthy quotations, as the hon. Gentleman will know, are really not acceptable.

Peter Bone: Thank you, Madam Deputy Speaker. I do apologise, but I wanted to get on record the fact that I was not misrepresenting in any way what the Chancellor had said. Basically, we had moved from the idea of preference shares to massive investments in common stock. Only in today's estimates are we being asked to provide £9 billion of preference shares, when a few days ago we thought that we were going to be providing £25 billion of preference share stock. Instead, my calculation is that we have £28 billion of ordinary shares to buy, which came out of the blue. That is an extraordinary departure. The goalposts have moved so quickly and with so little scrutiny that I do not see how the House can approve today's out-of-turn supplementary estimates.
	Let me say something about the political impact of the statements and how the Government and the Opposition have worked. I would like to praise the Leader of the Opposition and the shadow Chancellor for what they have done in the past few weeks, which has not been easy for them. It would have been easy for them to attempt to make political gain, but instead they have acted in the best interests of the country. In this sobering time of financial crisis, they have put aside their differences and worked with the Government.
	The Leader of the Opposition and the shadow Chancellor deserve great credit for that. I fully respect their actions in putting the good of the country first. They have suggested amendments to Government actions and, at a time of extraordinary crisis for the country, have supported the Government to ensure that there is no panic in the system. The manner in which my right hon. Friends have conducted themselves has been admirable. They have done extraordinarily well. Indeed, today we have yet again heard a helpful and constructive statement from the Opposition Front Bench, from my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), who posed a number of questions that are of great importance to the country.
	However, that does not abrogate the need for a proper parliamentary discussion about today's estimates and the Government's decisions behind them. Having the issue debated in Parliament is the tried and tested way of ensuring that matters of such high national and international importance are comprehensively and successfully concluded.
	Let me turn briefly to something that appears to be missing from today's supplementary estimates, which is the situation of Equitable Life. I cannot understand why there is no provision in the estimate for the money that the Government will have to pay in relation to Equitable Life. By not bringing that forward today, they will have to return to the House and take up more parliamentary time introducing a provision to cover the cost of compensating Equitable Life pensioners.
	There is no question but that the Government will have to do that, because the ombudsman has ruled against them. Unless they totally ignore what the ombudsman has said, why on earth was a small additional provision not included in today's estimate to cover the potential cost of compensating Equitable Life pensioners? If I were an Equitable Life policyholder, which I am not, I would be outraged that the Government are providing £42.2 billion of taxpayers' money to prop up the banking system while dragging their feet in supporting pensioners whom the ombudsman has already ruled should be compensated. I would be grateful if the Government could explain that omission.
	Let me turn to the detail of what we are considering, which is the central Government supply estimate and the documentation relating to it. This large document—the placing and open offer agreement—is what the Government have supplied as background reading, and it was great fun to spend many hours reading through it. It is about spending £37 billion of our money. I have looked at many share subscription agreements in the past, but the ones in this document seem to have so many holes in them that we could spend the rest of day going through each one. I am not going to do that, but I want to address the main points that we are considering today.
	I should point out that we are talking about only three banks, not the whole banking system. In fact, in his statement on 13 October, the Chancellor confirmed that Santander, Barclays, HSBC, Standard Chartered and Nationwide had all increased or were in the process of increasing their capital base without having to turn to the Government for funds. I therefore want to discuss what in the out-of-turn supplementary estimate relates only to HBOS, Lloyds TSB and RBS. There is a broad breakdown of the estimate in House of Commons document HC 1061. The details of the estimate are broken down in six separate documents, but they are far from complete and in some respects contradict each other.
	It is extraordinary that the preference share subscription agreements could be so different and written in such a different style. I note that the US Government's proposals, issued overnight, are common for all banks, and I am amazed that the same is not true for the three banks that we are talking about. I am not talking about just the details of the dividend rates; I am talking about the style and manner in which the agreements are written. One document refers to a floating dividend rate plus LIBOR, another to a floating dividend rate of LIBOR plus 7 per cent. They may refer to the same thing, but they are written totally differently.
	I have personal experience of dealing with a Government preference share issue. It was many years ago, when I was running a small, expanding manufacturing company, but the principle is the same. In my case, we were helping to expand a new manufacturing company, but the issue could equally have been to support the working capital of an existing company. And we are seeing exactly the same principle today. My case involved £100,000—if we add a few noughts, we can compare it with what we are dealing with today—and it involved non-voting, fixed-rate, cumulative, redeemable preference shares. Preference shares are ranked more highly than ordinary shares, so if there is a liquidation, the holders of those shares get their money back before the ordinary shareholders. However, the holders of preference shares rank lower than creditors, so they in fact become the capital of the company.
	In the supplementary estimate that we are considering today, we are told very little about the terms involved. We have to look behind it to the supporting documents, which are not entirely clear. If I make errors when I talk about what I think the Government are proposing, it is because we have not had a clear, proper explanation of exactly what they are doing.
	In the case of a cumulative preference dividend, if a company cannot pay a dividend, it does not have to do so. However, when its trading recovers, the dividend is collected in subsequent years. For example, a return of 5 per cent. might not be paid in year one or year two, but a return of 15 per cent. would be paid in year three. That dividend would be paid before anything was paid to the common shareholders. Why have the Government not made the preference share agreements cumulative? According to the documents, they are non-cumulative. There is therefore a possibility of there being no return at all for the taxpayer from the preference shares.
	In my case, the preference share dividend was paid, the shares were redeemed and the company flourished. I would hope that that is the outcome that we want from the banks. However, the Government have done some extraordinary things. First, there is the non-cumulative aspect of the preference dividend. Secondly, the notional preference dividend is an extraordinary 12 per cent., at least until 2013. After that date, it splits, and Lloyds TSB will pay 7 per cent. on the preference dividend, while HBOS and RBS will pay that amount plus LIBOR. I do not understand how that will work if the Government are planning to put Lloyds TSB and HBOS together as one company. That is not explained in any of the documents or in the supplementary estimate. The rate of inflation is 5.2 per cent. at the moment. I could understand the Government setting the notional preference dividend at 12 per cent. if they thought that there was going to be an explosion in inflation. At this stage, however, it appears punitive, and it will prevent the company from making any preference share dividends. In the United States, the Government have come up with a 5 per cent. preference dividend.
	Another issue that concerns me greatly is the restriction on when the preference shares can be redeemed. They cannot be redeemed before 2013, plus five years from the date of issue plus one day. That makes them a medium-term investment. The decision whether to pay a return on them is entirely a matter of discretion for the board of directors. That is made clear in the documents. If I were one of the directors, I would not declare any dividend before 2013, given that the directors would not be allowed to pay an ordinary dividend until all the preference shares had been redeemed, and that they could not redeem the preference shares until at least that date. If they repaid the preference shares at that point, there would be only one dividend payment. If that were divided by the minimum number of years that the preference shares had been held, the rate of return for the taxpayer on the billions of pounds invested in those preference shares would be 1.4 per cent.
	We have already seen outrage in the financial press at the idea of preventing the banks from paying ordinary dividends until the preference shares have been redeemed. I cannot imagine why people would want to invest in banks that they know cannot pay a dividend until at least 2013, and possibly much later, when there are at least five other banks in which they could invest. That is a huge error on the part of the Government. They do not seem to have thought this through, and it is their rush to take action that concerns me most. I would have liked them to say that they would look at the provisions for preference shares, think the matter over in more detail and come back to us early next week with a properly thought-out motion that we could discuss before debating the supplementary out-of-turn estimate. The problem with agreeing to the estimate today is that a Bill was automatically generated under the motion passed last night on which we are allowed no debate whatever. We will be allowed only to vote on it.
	My suggestion to the Government is that they follow the American example of having a much lower preference dividend rate, and that they allow dividends on the ordinary shares. Let us face it, we are going to be huge holders of the ordinary shares, and such a provision would get a return for the taxpayer right away.
	I want to make a couple of points relating to the massive common share issue, which is totally new and has had no parliamentary scrutiny. Originally, we were told that Lloyds TSB, a strong bank, was to take over HBOS, so that there could be a market solution to HBOS's problem. We were told that we were going to throw away the competition laws to allow that to take place. I am not sure that that was the right thing to do at the time, but the principle was that the two banks were being put together to provide a market solution. I really want the Government to explain why Lloyds TSB is not being allowed to go its own way, like Barclays and the others, now that we have nationalisation—or part-nationalisation—on a massive scale. It is a much stronger bank. We would then have only two banks in part-nationalisation. I have seen no ministerial statement, either in the House or in public, on that issue.
	Finally, I turn to the supplementary estimate that we are being asked to consider today. There has been an enormous amount of talk across the Dispatch Box about the terms and conditions that would be put on these companies. I have hunted high and low through the documents to find out what kind of controls are to be placed on the directors. When I was in business and a mere £100,000 was being invested, we had a thick booklet to tell us what we could and could not do. Our emoluments were controlled. Only two pages among the several hundred pages of documents before us deal with this issue. They state that the directors cannot have a cash bonus this year, but they can have a bonus in stock. Most bonuses are in stock anyway, so no control is being placed on these greedy bankers about whom there has been so much fuss. The Government might be trying to hide the fact away, but there is nothing in the documents that will control those emoluments. That is an extraordinary omission.
	At the same time, however, the documents set out a wholly unacceptable condition—my hon. Friend the Member for South-West Hertfordshire was right to correct me on this earlier. They state that, for three years, the level of lending must be at the 2007 level—the very time when too much lending was going on. The Government are imposing only very limited conditions on the directors, yet they are imposing a condition on the banks that is completely wrong for them and for the country. There are no time scales on these investments. The documents just have blank spaces where the time scales are supposed to be. They say 20—something. This week, we have been debating important issues, but not ones of fundamental significance, yet we are being asked today in a three-hour debate to approve a blank cheque for £42.2 billion. That is just plain wrong.

Andrew Tyrie: I strongly support bank recapitalisation. We therefore have no choice but to support the estimate.
	Before I go on to discuss that, I want to allude to an issue raised in the debate on the Banking Bill yesterday. A number of people, including the press, have raised with me the allegation of the hon. Member for South Derbyshire (Mr. Todd), who I see in his place, that my article in  The Times of 3 October was in some way connected with secret briefings that had allegedly taken place between the shadow Chancellor and the Governor of the Bank of England.
	When I heard about the issue this morning, I was at first flattered that someone had taken the trouble to read my article, but I have now realised that, given the calls that I have had, I cannot let the matter rest. The hon. Member for South Derbyshire suggested that my article was derived directly from the briefing, and I am told that he has not been the only one to make the point, as a number of press briefings to the same effect have come to my attention.
	I want to make it clear that the allegation is complete nonsense. I had no knowledge of any secret briefings between the shadow Chancellor and the Bank, although I have subsequently learned that a meeting did take place on 3 October, at which the Treasury was also present. Nor did I have any such conversation with the Governor. I know him well, but in recent months I have had no conversation with him or with any Bank of England officials.
	I wrote the first draft of my article in mid-September, immediately after the decision taken by Paulson to let Lehman go bust. In view of that decision, I concluded that a general collapse in trust between banks about each other's solvency was very likely and that bank recapitalisation would probably be an essential part of the solution. I discussed the article with  The Times quite early on and a first draft was sent well before the 3 October meeting—at least a week before would be my guess, although I have not yet checked it with the newspaper. It is true that I rang the shadow Chancellor's office on several occasions during the week of 22 September to put the case for bank recapitalisation and I also sent him a copy of my article a few days prior to its publication. Those are the facts and, judging by the briefings going around, there seems, frankly, to be a bit of paranoia going on.

Mark Todd: I would like to make it clear, first, that I entirely accepted the assurances given by the shadow Chancellor in yesterday's debate about the lack of provenance of any linkage between the article and his briefings. Secondly, I accept that it is entirely appropriate for the Governor to brief the Opposition in confidence; I certainly intended to cast no aspersions and I do not think that I expressed any to the effect that doing so would be wrong. It is, as I say, entirely right and appropriate. Thirdly, I withdraw, of course, any implication that the hon. Member for Chichester (Mr. Tyrie) might have been involved in any deep-laid plot. My reference was focused on the issue of the requirement for confidentiality in the preparation of a complex package of this sort; it was not an attempt to link the hon. Gentleman with the issue.

Andrew Tyrie: I am very grateful for those remarks and I appreciate the hon. Gentleman's alerting me earlier today of his intention to make that statement.
	We are being asked to stump up an unprecedented sum to bail out the banks and shore up the financial system. I strongly support the main elements of the bail-out; I just regret that the Government did not get to it earlier. Judging by the thinness of the Chancellor's first statement, which was clearly no more than a holding operation, it is likely that Ministers had not undertaken adequate contingency planning for bank recapitalisation over the last few weeks and months. Much of that work should have been done after the failure of Northern Rock. It should have been clear then that something further might be required. Such work should have been at an advanced stage by the time of the Lehman collapse. History will, of course, tell us what Ministers were doing and what was really said, done and commissioned during that period. I am sure that officials were hard on the case; the question is whether the Chancellor and the Prime Minister realised the gravity of the situation.
	In my view, the bank recapitalisation plan should have come as soon as solvency risk grew sharply between the banks and they more or less completely stopped lending to one another. That was almost a month ago, and the delay may prove to have been very costly, not only in lost confidence in parts of the financial system, but in costs to the real economy.
	What of the package that we are being asked to fund today? First, we need more information. The US Administration got out of the traps a few days later than us with their bank recapitalisation package, and they appear already to have provided more detail about their rescue than has our Treasury. My hon. Friend the Member for Wellingborough (Mr. Bone) alluded to this issue, and I have picked up information about the details of the package as much from Lloyds bank press releases as from the Government. From that, I learned about the terms of the preference shares, which my hon. Friend also mentioned. I agree with him that their terms are draconian. The coupon is 12 per cent. and it is not tax-deductible; nor can it be redeemed for five years. I shall not comment on whether I believe that that is right in the present context, as it would need a lot more information and thought before doing so, but it is certainly a matter that I would ask the Government urgently to review.
	My general point is that Parliament and the informed public are not in a position to conduct the necessary form of scrutiny because the information is, in many cases, simply not available. I realise that it is difficult for the Treasury to put such information into the public domain on the hoof, as there is always the risk of being picked up for any mistakes in what is published. However, there is a case for getting on with it and getting it into the public domain as fast as possible, even if, in some cases, what is put out is work in progress. We also need to know more about the competition exemption. I strongly agree with what my hon. Friend the Member for Wellingborough said about that earlier. I now have grave doubts about the retention of a competition exemption for banks in which the Government have sizeable stakes.
	I do not want to go on for too long, but I want to make a few remarks, which may perhaps collectively form a plea for a sense of perspective over what we have just been through. There are about half a dozen points to be made.
	My first point is about the nature of prosperity. We need to keep our focus on the source of the prosperity that we have enjoyed. Over the last 25 years, we have been through, arguably, the greatest increase in welfare and freedom that the world has ever seen. Globalised capital markets played a crucial role in securing that prosperity, as, of course, did the collapse of socialist economics. It is extremely important that we do not lose sight of that in reacting to the crisis.
	A second related point is that we really must not end up blaming all global financial instruments as somehow pernicious. Many of those instruments have not been responsible for the crisis; indeed, they helped to spread the risk and reduce systemic dangers. It would be an absolute disaster if, in response to the crisis, we tried to return to segmented global financial markets.
	Thirdly, we must not draw the wrong conclusions from the fact that we face a sharp downturn and possibly, I fear, a recession. We will, of course, have a cyclical downturn and it could be large, but it was a big mistake to imagine that we could abolish the business cycle. I recall the Prime Minister saying that time and again when he was Chancellor about a decade ago. I was not present for Prime Minister's Question Time earlier, but I gather that this issue was raised. The Prime Minister was charged with saying 180 times—in this House alone—that he would put an end to boom and bust. It is not just that he was wrong, but that saying it caused damage because it gave people, businesses and financial markets a false sense of security. That applied to millions of people who take their own individual financial decisions, who were encouraged to take on even greater risk than they would have done otherwise. The truth is that, despite the spilling of several centuries' worth of ink on the subject, as far as we know at the moment the business cycle is ineradicable, and any attempt to set a policy to remove it is bound to fail.
	My fourth point concerns regulation. There will be calls from all sides for more regulation, re-regulation and heavier regulation, but I feel that we must avoid a panic reaction. I was struck by what Congressman Oxley said when he came to London a couple of years ago. As was widely reported, including in the  Financial Times, he said that the Sarbanes-Oxley package had been an overreaction, and that those responsible were now repenting parts of it at their leisure. That package probably did not reduce risk very much, and certainly did not reduce it in the way intended. What it did was transfer a good deal of listing to the United Kingdom and other markets around the world.
	I have two or three more points to make about regulation. There has certainly been a failure of transparency in the pricing of risk. This may appear to be a recondite issue, but accounting standards definitely need to be tightened. There has been far too much managerial discretion on the part of banks in regard to how to value their assets. We shall need to return to that subject on another occasion, as there is no point in elaborating on it now, and in any event it is not clear exactly what needs to be done; all that is clear is that we should not continue as we are.
	Then there is the regulation imposed by the Financial Standards Authority in other ways. We must be extremely careful not to allow ourselves to be drawn into thinking that prodding the FSA to become a more vigorous policeman will necessarily afford us better protection from this type of risk. The FSA's periodic investigations of firms are akin to compulsory risk management consultancy activity, and, like any consultant, its work is only as good as the information that is given to it. It always knows less about the companies that it investigates than the management of the companies themselves, and in any case the work that it does can easily become just a business cost: in other words, the consumer pays for it but gains very little protection. I make no specific recommendation, apart from that we should be very cautious about demanding far more of the FSA in terms of risk-based regulation of individual firms in response to this crisis.
	I think there is a case for strengthening boards, especially those of financial companies, in a number of ways. For example, could the combined code be strengthened to trigger greater shareholder activism, particularly to secure the appointment of more truly independent-minded non-executive directors? I think there are far too many comfort-zone appointments of "non-execs". It is partly their job to pick up the growth of this kind of risk on the balance sheet. We have all been appalled by a number of the financial instruments that have found their way into the asset base of banks. The sad truth is that many, perhaps in some cases all, of the directors on the boards of huge institutions who make the decisions have failed to ask the right questions about the content of instruments such as collateralised debt obligations and special purpose vehicles. It is very difficult for them to do their job, but we must have people who are prepared to ask tough questions of management about such instruments.
	The Government have improved depositor protection, and I think that they were right to respond in the way in which they did. They were, I think, also right to be cautious about blanket protection for deposits, whatever their size, certainly at this stage in the development of what I hope will now become a containable crisis. If all risk is removed, customers will simply chase the highest yield, which creates a form of moral hazard. That is pernicious in the long term. Such a blanket commitment would also be extremely difficult to reverse should a future Government wish to take such action, as I think they probably would.
	I want to say a little about the monitoring of systemic risk, which clearly failed in the run-up to this crisis. It is not just banks that missed what was on their balance sheets; the Government, and the structure of systemic risk management that they introduced, have also failed. The institutional arrangements that were established as a consequence of Bank of England independence were clearly seriously deficient. The tripartite committee was created as a residual body, as an afterthought after the decision to strip the Bank of England of its regulatory function had been taken.
	How should we deal with the systemic risk issue? During the Committee stage of the Bill that became the Bank of England Act 1998, I observed that it was crucial for the financial markets and the wider public to see one person in charge and leading the response to a systemic crisis. The creation of the tripartite committee, however, meant the creation of two independent statutory bodies with their own vested interests to deploy, plus, of course, the Government. At the time of the Northern Rock crisis, we saw those institutions initially minding their own backs and guarding their turf, rather than working collectively to reach a common position. We have now arrived at a point at which we have clear leadership. It is belated—it has taken 14 months—but thank goodness we have it. I believe that the tripartite arrangements must be altered to leave one person ultimately and clearly in charge of systemic risk management, and in my view that person should be the Chancellor of the Exchequer, accountable to this place.
	Let me end with a point that may seem out of place at the moment, but to which we shall all have to turn our attention in the months and years ahead as a consequence of the passing of this estimate and the banks' partial nationalisation, as we are now told to call it. That means mentioning the word "privatisation". A key job for what I hope and expect will be a Conservative Government in a few years' time will be to get rid of these shareholdings: to offload them and privatise the banks. It is essential that that task is accomplished as quickly as is reasonably possible. If we do not take such action, the losers from the retention of these state-influenced banks will be customers, as a consequence of higher bank charges, and the whole economy, as a consequence of a less efficient banking sector than would otherwise exist.
	Even as the Government put this package together, I very much hope that they are giving deep thought to how to unravel it in a systematic and intelligent way. They must have in mind all the time where we want to end up. We do not want to end up where we are as a result of the package; we want to end up somewhere very different.
	We have narrowly avoided disaster in the last few days and weeks, but the fact that we have narrowly avoided it should not deflect our attention from the fact that we have been faced with a very serious risk indeed. We should, of course, support this rescue plan, but we are only in the foothills of learning the lessons that will flow from the events of the past few weeks and months. If I am to leave the House with one thought, it is that I am very confident that panic overreaction in the regulatory field, and in the other fields to which I have alluded, would be the wrong response.

Charles Walker: Thank you, Madam Deputy Speaker, for calling me to speak in this supplementary estimate debate. I had a good crack at this subject in yesterday afternoon's debate on the Banking Bill, so I shall keep my remarks short and concise, which I am sure will come as a great relief to you.

Graham Stuart: And as a surprise.  [Laughter.]

Charles Walker: That is very rude of my hon. Friend.
	The first principle is that the Government have absolutely no money whatever. All money that the Government spend ultimately belongs to the taxpayer; after all, money is raised from the taxpayer. Today, we are looking at a further £42 billion being placed on the public sector borrowing requirement. In recent days, we have moved effortlessly from tens of billions of pounds to trillions, so £42 billion may not sound like a lot of money any more. It sounded like a lot of money three months ago, but now we are in the world of trillions of pounds. It is, however, a huge sum of money, and eventually—sooner or later—it will have to be paid back by the taxpayer.
	The sum is, of course, not just the £42 billion of today; a huge amount of borrowing is currently going on outside this £42 billion. Indeed, it is highly likely that by the end of this financial year the Government will have borrowed more than £100 billion, and next year that figure may be exceeded by many tens of billions of pounds. That could mean that next year one in every five pounds spent by Government is borrowed. Clearly, that is not a sustainable position in the long term, and even in the short term it will put our public finances under huge stress for many years to come.
	I have had the benefit of the good times. I am 41; I have prospered, my house prices have gone up and my assets have risen in value—admittedly, they have come down a bit in the past few months, but I will have to live with that. However, what worries me most is that this debt we are signing off today—and I am sure we will be called back on numerous occasions over the next few months to sign off even more debt—will be paid back by my children, and there is every possibility that it will be paid back by my grandchildren. Therefore, we are saddling future generations with a huge burden at a time when they themselves will probably have to start paying for things such as their own university education, long-term care and certain drugs not provided by the NHS. Let us be in no doubt, therefore, that what we are doing today will have long-term ramifications for many years and decades to come.
	I want briefly to focus on the preferential shares the Government have taken in banks. The Government are charging a hefty return of 12 per cent. interest per year. We could say, "Isn't that brilliant? The banks are getting it taken to them. They are going to get screwed down. They will have to come up with that 12 per cent. My word, they deserve it." However, we all know that, ultimately, it is the customers of these banks who will pay the 12 per cent. People on very limited earnings will face increased bank charges, and will get letters that are even more threatening when they go into an unauthorised overdraft, and will receive phone calls saying, "Your mortgage is about to change rate, and, by the way, you were on 5.5 per cent., but you are now going to 8 per cent." Good, profitable businesses will get phone calls saying, "By the way, we are doubling"—or even trebling—"your interest rate." These measures will hurt immensely. All these routes lead back to the poor bloody infantry—the taxpayer. There is no free ride here; the taxpayer is funding this.
	As I mentioned yesterday, my main concern is that over the next year or two taxes on the very poorest will have to increase to fund this. Our tax burden will go up across the piece, but those in the worst position to pay the increase will carry an unfair burden. There are many people who earn at or just above the minimum wage, and who do not have bank accounts, savings or mortgages. It is true that we are safeguarding the savings of those lucky enough to have them and the situation of those with mortgages, but there will be a huge transfer of wealth, in the form of taxes, from people who have none of those things. They, too, will be caught up in this terrible web of debt and payment, and that is a great shame.

Graham Stuart: Will my hon. Friend comment on the fact that it is the very people he is talking about—those who have not enjoyed the fruits of the Brown boom—who will pay the price? How much greater might their taxes be in future, while those of great wealth have been most protected?

Charles Walker: My hon. Friend makes a very good point. People on every income scale will pay more tax, but those at the very bottom are least capable of doing so. They are already living week by week, and sometimes day by day, waiting for the next pay cheque. This will be a huge burden on them, and it is a burden that all parties in this House have a duty to ease sooner rather than later.
	The taxpayer will be paying more income tax, but there is also a great danger, owing to the fact that the Icelandic banks went bust, that the taxpayer will also pay more council tax. We really must wonder what the rating agencies were doing to earn their money. In Hertfordshire, £28 million of taxpayers' money has potentially been lost as a result of the failings of the Icelandic banks, and I know that Hertfordshire took advice from rating agencies and that the agencies said, "Well, we did downgrade the Icelandic banks," but they downgraded them from AAA ratings to AA ratings. As local authorities seek to rebuild their reserves, that will, of course, result in either work not being done in the affected counties or the tax base of council tax payers having to rise in the short to medium term. This is another way in which taxpayers will be forced to pay for regulatory failings and the failings of this Government.
	Members should not be in any doubt as we sign off this £42.2 billion that a huge amount of pain is in store over the next few years for a fair number of people. I wish that was not going to be the case, but it is. Good businesses will go to the wall; families will lose their homes; men and women are going to lose their jobs. There will be a huge, and somewhat unnecessary, amount of pain.
	It is hugely refreshing that we are having this debate about the Government's record and the failings of the regulatory system and the rating agencies, because that is the very essence of democracy. I was amazed that a number of colleagues and commentators in the newspapers sneered at what went on in the House of Representatives a few weeks ago, because that was the essence of democracy, too—the Executive were being held to account. At a time when Members of Parliament are held in such low esteem, we must not let these opportunities to hold the Executive to account pass. I am therefore disappointed that so few colleagues are present to take advantage of this opportunity—and I was also disappointed that so few were present to take advantage of the opportunity afforded by yesterday's debate on the Banking Bill.
	We have heard a lot of talk about consensus politics, but I do not like consensus politics because we live in a multi-party democracy. If we want consensus politics, we should go and live in China. What we want is constructive politics, which centres on robust debate and forensic examination of what is before the House. I therefore ask for less consensus politics and more robust and constructive politics because, after all, that is why we are sent here by our constituents. We must rise to the challenge at this important moment in our history.

David Heath: It is a pleasure to follow the typically thoughtful contribution of the hon. Member for Chichester (Mr. Tyrie) and that of the hon. Member for Broxbourne (Mr. Walker). I challenge the latter on only one point. He says it is inevitable that those on the lowest incomes will suffer most from future taxes, but that is a political and fiscal decision for us in this House to take. It is my firm belief that those who can least afford it should not bear the weight of the measures that we are putting in place; it should be borne by those who have the finances to pay their fair share towards the running of this country.

Charles Walker: rose—

David Heath: I give way, but I do not want to get sidetracked into a separate debate.

Charles Walker: I am grateful. I hope that the hon. Gentleman accepts that I said it was incumbent on all of us in this place to ensure that that happened.

David Heath: Of course I accept that. How to structure taxes to ensure that we protect those who can least afford the stresses of the current situation will be a very important debate for us to have in the near future.

Graham Stuart: Will the hon. Gentleman give way?

David Heath: I give way, but as I said, I do not want to be diverted from my principal reason for speaking.

Graham Stuart: I am extremely grateful. My hon. Friend the Member for Broxbourne (Mr. Walker) was absolutely right to say that the burden will fall on those with the lowest incomes. It is difficult to structure our fiscal policy so as to protect them, because at the moment 40 per cent. of the largest single tax take, income tax, is paid by 5 per cent. of the people. In a globalised world in which the super-rich can easily leave the country, it will be those at the bottom of our society who are left to pick up the tab. That is why it is so important that Governments do not repeat the gross errors made by this one, which have helped to put us in the position we are in.

David Heath: The hon. Gentleman tempts me into a debate that is for another day, but I hope I have made my views clear.
	I welcome the comments of the hon. Member for Wellingborough (Mr. Bone). I do not agree with everything he said, and he would not expect me to, but his most important point was that this is the first opportunity that Back Benchers such as myself have had to say anything about the biggest international and national crisis that the House has had to cope with for many a long year, and that a debate such as this is an inadequate vehicle for that purpose.
	I would go further: I have said more than once how badly the House deals with matters of supply, which some would say is our prime purpose. It is why we are sent to this House, yet we are unable properly to scrutinise Government expenditure. I suppose that we do a reasonable job of scrutinising the raising of revenue, but expenditure is largely a matter of the House rubber-stamping estimates during wholly inadequate estimates day debates. If the House is serious about holding the Government to account for the vast amount of taxpayers' money that they spend, it needs to consider major reform of that procedure.
	As the hon. Member for Broxbourne said, it is extraordinary that so few right hon. and hon. Members have felt it appropriate to come to debate the spending of £42 billion. They will come and debate other things, but £42 billion? "Oh, well, that's nothing important, is it? That's not why we're sent to Parliament. We've got far more important things to do." Well, I disagree; I think it is exactly why we are here.
	Various hon. Members have mentioned the difference between how we debate these matters and the American system. There is much to criticise about American governmental and administrative structures, but it is entirely misplaced to argue, as some have, that it was wrong for the House of Representatives to debate at length and in detail the package that was put to it a week or two ago. Whether or not we agree with the views expressed, it gave those representatives the opportunity to express the views of their constituents, which are easy to forget in the desire to establish consensus. That is not an unreasonable or incorrect impulse, but there seems to be a desire to demonstrate how clever we all are about matters economic and financial. I am certainly not clever about them. My hon. Friend the Member for Twickenham (Dr. Cable) is, which is why I trust implicitly the views he has expressed in recent weeks. I claim no expertise, but I do claim a right to speak up for my constituents and discuss the concerns that they have expressed to me. I shall therefore talk about those concerns.
	I am not against the step that we have reluctantly taken to recapitalise the banks through the mechanism that has been set up. It raises enormous questions, of course, and at one stage I was worried that there would be an almost free injection of cash into the banking sector. I could not have countenanced that without at least some return for the taxpayer. I am satisfied that that is at least partly covered in the Government's proposals, but the people in our communities who examine what the House and the Government are doing have real concerns that have perhaps not yet been satisfactorily met.
	Our constituents have suspended disbelief at the moment. They accept that there is an enormous crisis. It was often referred to last week as "staring into the abyss", but a more apt metaphor would be the mediaeval maps of the world on which there would be a vague bit around the edge, where would be written "Here be dragons". Nobody knew quite what would happen if they sailed off the known world into the areas where the dragons were assumed to lie in wait. We do not even know the nature of the dragons, but it was an extremely scary place to be.
	I hope that what has happened in the past week or so, in this country and internationally, will have allayed some fears and staved off some of the dangers, but there is still genuine concern. I think that people are beginning to realise just how important the whole process has become to their real lives and the real economy. The interconnection was not immediately apparent. People in Somerset do not lie awake worrying about merchant bankers. If the merchant banking system were to crash suddenly, it would not cause many tears among my constituents until they realised the consequences for real jobs and businesses and real people's private finances.
	I received a tragic letter from a constituent about events a long way away, in the United States. Sometimes we wonder whether we worry unduly about events in the economy and politics of the US, but the letter was from a 94-year-old lady in a nursing home, all of whose savings had been invested without her positive agreement—it was done by one of those advisers who manage such things—in Lehman Brothers. When she wrote to me, she had no idea whether she had anything at all left to ensure that she would be looked after in her old age. That shows the real interconnection between events that may seem distant but actually have direct consequences in our communities.
	The big question that my constituents and, I am sure, those of other hon. Members are asking is where the conditionality is. They say, "We are putting into play vast amounts of our money, so what do we get out of it, other than stability?" Stability is a perfectly good end in itself, but what else do they get? One issue that has been raised with me many times is the culpability of those who took risks and played fast and loose, and whether there will be a degree of retribution. Will those people get their come-uppance?
	It is unfortunate to use another north American example, but when the chief executive officer of Lehman Brothers was before a congressional committee, he was taxed on why he was walking away from the crash with—what was it?—$500 million. People do not understand why somebody who appears to have been criminally irresponsible with their money gets to keep $500 million. That sticks in the craw of many people in this country; they do not like the idea of a one-way bet. They do not like the idea that someone can win only if they have the money to pay the entrance fee to these casinos that we call the City, because if they find themselves losing, somebody else pays the bill. The view that this is a one-way bet whereby people can only win and cannot lose offends not only the Chapel sensitivities of people in Somerset but ordinary British people, and we must be careful not to create that impression.
	People are worried about the vulnerability of the money that is being invested by the Government. They want to know that it is not simply being poured down the drain and that there will be a return on the investment. I look at what is proposed, but I am not sufficiently expert to be convinced that there is a lock on those investments that will ensure a return for the taxpayer—I hope that there is. Most people have to accept at face value the assurances that they are given, but, not too far away, there will be a reckoning when we will see whether there is such a return.
	People want to see equity between different interests and between different sectors, because it cannot be right that the Government are interested, for strategic reasons, in propping up only one industry and will allow others to fall. That takes us into tremendous conundrums of national policy: are we then to intervene in every failing company in every failing sector, or are some sectors considered more equal than others? I do not know the answer to that, but I know that the question will be asked. There have been recent company failures in my constituency. Usually the companies involved are not household names. They are not big companies that attract the headlines, but for the people who find themselves redundant as a result of such failures, it is every bit as important as the collapse of some big name in the City.
	That brings me to my next concern. Unemployment is rising, and we have explored that over the past couple of days. I remember when I was first elected, the town of Frome, which I have represented for nearly 25 years in one capacity or another, had a 17 per cent. unemployment rate—it was crippling. The town was in deep and long-term recession. Over recent years, the town has been blessed with almost zero unemployment—almost full employment. It has been very good for the town. There have been hiccups along the way: companies such as Cuprinol and Coloroll, the carpet company, both of which people will have heard of, lost their way, but we recovered from that because the underlying local economy has been strong. Now, unemployment is creeping up again. Although the increase is not huge in empirical terms, in proportional terms we are talking about quite a high percentage. What worries people in rural areas—areas off the main communications system—is how we win those jobs back in a competitive environment if there is a national recession.
	I am not satisfied that we have right even the basics for dealing with failing companies. Only this Saturday, a gentleman who had just been made unemployed—along with a number of his colleagues—came to my constituency surgery. He had not been paid his last month's wages, but the company was carrying on trading. It was doing so despite failing to pay these employees for their last month—they were owed that money. That is not a unique experience, but it is wrong; it is robbery and theft from the people who can least afford it, and I object to it.
	We talk a lot about the need to refloat the business economy, particularly small and medium-sized businesses, which are so dependent on bank loans in order to maintain their business. I have yet to see clearly that the steps that have been taken have had the desired effect, although I have faith that they will do so. A big risk is involved over the next few months. I supported the Bank rate reduction, and my hon. Friend the Member for Twickenham had called for it, although he would perhaps have preferred a slightly more aggressive reduction. However, if it is not even passed on to those who have loans with a bank in Government ownership, why should we trust that other banks will pass it on? What mechanism is in place to ensure that banks make business loans both available and affordable, rather than merely to exhort them to do so?
	Housing and household repossessions also need to be addressed. The biggest growth industry in Somerset is in the courts dealing with repossession orders: there are not enough people to hear the repossession cases in order to clear the backlog, and the position is worrying. I have been warning for many years about the situation in my constituency, which has one of the country's highest ratios between average house price and average earnings. The fact that people are paying such large multiples of their average wage to keep a roof over their head is unsustainable—indeed, many people cannot have a roof over their head, at least not in the village or small town in which they were brought up.
	Foreclosures are now occurring, and it is not clear to me that what the Government are proposing and what we are being asked to support will reduce them. Measures could be taken to do so: we could offer to take equity in houses in order to keep people in possession of their own homes. There are ways that the banks, building societies and others could make a real difference, but it is not clear that such measures are included in the proposals before us.
	Mention has been made of local government and the difficult position that so many councils face in respect of their investments in Iceland. I looked at the list of such councils, and I could see no discernible political difference between the councils that had invested in Icelandic banks and those that had not done so. Many of the local authorities involved are considered to be the most astute in the country at financial management, so something has gone wrong with the advice they were given. I find it difficult to blame councillors of any political persuasion on this matter, unless I have evidence that they acted rashly. I suspect that most councillors will have had no part in the decision-making process. When I led a council, we were given regular reports on the investments of our pension fund, but they were in generic terms; such reports dealt with the sectors rather than the day-to-day management of investments. I would be worried if elected members had direct control of the route by which investments were made. Although I do not attach blame directly to councillors—or even to councils, provided that they were shown to have taken proper precautions—we must do something to get the assets back.
	It is very important to get those assets back, despite the fact that, compared with the turnover of the councils, the investments are relatively small. The figures sound huge when they are quoted down the pub, but they are only a small part of the annual spend of large county authorities. However, the sums are significant and need to be returned. The Government and the Local Government Association—and anybody else who can help—need to be fully engaged in ensuring the return of those assets, because if they are not returned, the money cannot be used for investment in the local community, be that in the direct provision of services or in long-term capital investment and so on. Thus, the return of those assets is an imperative.

Graham Stuart: Does the hon. Gentleman agree that the Financial Secretary owes the House an explanation of the guidance given to local authorities so that the House and the British people can better understand how local authorities, police authorities and others invested so much public money in Icelandic banks?

David Heath: That is right. We need to look at the work of the rating agencies as a whole, because if the advice that they were giving was so inadequate they are not carrying out their primary function. We should be aware of that and should perhaps take with a pinch of salt any advice that they proffer in the future.

Peter Bone: I am listening with great interest to the hon. Gentleman's very powerful speech. I did not touch on this issue in my speech, but does he think that the out-of-turn supplementary estimate should have a provision equivalent to the amount of money that local government has lost to Iceland, in case it is necessary to resort to that? As he said, it is not the fault of individual councils that such things have happened—it is just pot luck.

David Heath: It is difficult to answer that, because I want to see that money returned from where it is sitting. I do not want to pre-empt the argument and, to an extent, if we made provision for that money as a bad debt we would be pre-empting the position. I urge the Government and everybody else involved to show the utmost vigour in ensuring that those assets are returned because they are of such value to local communities.
	I want to conclude, but let me deal with two more areas of concern. One has been mentioned several times, but I shall repeat it. I fully expected in the recess that the first thing we would come back to would be a statement about how the Government would respond to the ombudsman's report on Equitable Life. In fact, I said in writing to my constituents that although we did not receive such a statement before the recess, we would of course hear one in October and that the Government would tell us how they would respond and that they would make appropriate recompense to those people who were so badly let down by the regulatory authorities. We still need that statement. We need it even more urgently because, quite rightly, people will ask how such measures can be taken for some people while in the case of the people affected by Equitable Life, who have a clear independent arbiter's review that shows they have been let down by the regulatory authorities, the matter is apparently not even to be mentioned, let alone dealt with. That is a matter of urgency.
	The other statement I fully expected to hear this week was an explanation of the details of the insulation grants announced by the Prime Minister over the recess. It might be said that that issue is very far removed from the supplementary estimate, but it is not. The single biggest financial problem faced by many of my constituents is how to heat their homes over the winter. Telling my constituents that they can have grants for cavity wall insulation, when most people have houses with solid walls because it is a country area and the houses are built of rubble stone, is not an adequate response to the huge increase in heating costs. That increase in costs is a particular problem with heating oil, which is another difficulty in rural areas that perhaps does not apply in some suburban and urban areas. Those old-age pensioners who will see the value of their investments, if they have them, reduced and are on a fixed income will find it very difficult to get through the winter.
	When this is all over—when the war is over—big questions need to be asked about the regulatory process. I agree that we do not want heavy-handed regulation, but we want regulation that works and that is effective. It is clear that we have not had that. We want to see financial products that are properly transparent. I cannot begin to understand the intricacies of some of the financial products that have been marketed over recent years. We seem to be piling one bet on another on another until we reach the point where we cannot possibly have any trail of understanding that allows people to know what exactly they are investing in. People take a pride in the complications that they have introduced into financial products. It is all very clever, and I am sure it looks good when calculating the bonuses in the short-term financial environment, but it is not good business. It is not sound business, but that is what banks ought to be engaged in.
	I agree absolutely with the point made by the hon. Member for Chichester about the role of boards of directors and how they should be strengthened. We all know that some people have 25, 26 or 27 directorships, but they are not doing justice to their fiduciary role as directors. They cannot be. One cannot devote that many hours in each day to the proper care and governance of companies. We need a much clearer idea of the role of directors, and in particular the role of non-executive directors in asking the difficult questions.
	Finally, I do not think that the point about the complete failure of audit has been made sufficiently. It is incredible that we have auditing systems across the country that are so incompetent in advising shareholders, potential investors and anybody else on the strengths or otherwise of a company's position, including the position of the banks. My suspicion is that that has something to do with the conglomeration into the big three—or big four, or however many there are—large auditing firms, which seem to be unhealthily close to the companies that they audit. What I want to emerge from the situation is a hard look at the process of audit and at the strength of the auditing system. Perhaps rather than Chinese walls, there could be some real separation between auditors and the companies that they audit so that candid advice is available about the strength of a company's balance sheet and its position. Banks, building societies and financial institutions are meant to be the bedrock of our economy, and we are having this debate today and proposing to spend £42 billion because we cannot live without sound financial institutions. We have allowed them to rot from inside, and that is not good for the British economy.

Graham Stuart: I apologise for not being here at the beginning of the debate. I share colleagues' disappointment about the number of Members who are present for such an important debate.
	We have been lucky in the quality of the speeches we have heard—that has certainly been the case since I entered the Chamber. The hon. Member for Somerton and Frome (Mr. Heath) and my hon. Friends the Members for Wellingborough (Mr. Bone), for Chichester (Mr. Tyrie), and for Broxbourne (Mr. Walker) made thoughtful speeches, and all raised many questions. We look to the Financial Secretary, who is an experienced Minister and has served on the Treasury Bench before, for more answers than we received at Prime Minister's questions earlier today—I thought that the failure to answer some of the key points that were put was worrying. There are many questions to which we need answers this afternoon.
	One key question being asked is about the pledge to return to the lending levels of 2007 for the banks in which the Government take stakes. Perhaps that was just an off-the-cuff remark that was meant to reassure people that when the banks were taken over the Government would ensure that money flowed. Members have asked that question already, but we have had no answer from Ministers. We can all accept that there has been a deep crisis and that Ministers have struggled, at times, to control their panic and that of the markets. However, given the importance of the messages going out to markets, we deserve an explanation from the Financial Secretary of what the promise of the return to 2007 lending levels means. Perhaps it would be more sensible if the Financial Secretary were to alter that promise this afternoon and give us a clearer steer on the issue.
	There are also questions about the time scale of the vast public investment going into ensuring our banks' liquidity. We all recognise that it is difficult for the Minister to give any tight promises today, but I hope that he will give my constituents some reassurance. They have seen inordinately large sums go into the City of London, and they need some idea of when the money will be returned to them.
	Many hon. Members have remarked on the fact that it will be those in our society with least who will find themselves paying for the expense incurred for so many years to come. You, Mr. Deputy Speaker, will be aware that this country only in the past few years finally paid off its debts to the US incurred under the lend-lease arrangements following the second world war. My constituents want to hear from the Minister about the extent and time scale of the moneys committed by the Government in the past fortnight. Are their children going to be paying additional taxes to pay for the bail-out, or their children's children? We need reassurance from the Minister about that.
	I spent Saturday morning and afternoon knocking on doors in Thorngumbald in my constituency. It is a village on the A1033 east of Hull, and people there are a bit like the residents in the constituency of the hon. Member for Somerton and Frome. They feel very distant from the world of merchant banks, Lehman Brothers, Barclays, wealth and the rest of it, but they are aware that a dark cloud is coming towards them. They pay their taxes on time and always try to meet their obligations. They have been brought up not to borrow money that they are not confident they can repay, and they want to know what penalty they will pay because those in pursuit of vast wealth have gambled and lost. I hope that the Minister will address all the people, wherever they are in the country, who are sitting and worrying this afternoon.
	On Saturday, the people in Thorngumbald repeatedly told me that this country has not been put in a strong position to weather the economic storm. They are starting to pick up on the fact that, although the problem is global, not every country has been affected the same. In some countries, the banks have been regulated more tightly. Regulators in those countries and, effectively, the head of finance—or in our case the Chancellor—have ensured a more prudential basis for lending by the financial institutions than there has been in this country. My constituents are aware that this country has been spending money based on a false boom and that the coming bust will cost them dear, and probably in their public services.
	In particular, my constituents want Ministers to put up their hands and accept some responsibility. So far, that has not happened. When the Prime Minister has spoken about the crisis, he has sounded as though it had been visited on us from out of space, and as though he was not one of the world's leading financial secretaries, influencing colleagues around the world and working with them nearly every week on the problem of regulation in the financial markets. He has been in that position, and my constituents want to hear the Government accept some responsibility for the weaknesses in our system, whose results we are now seeing.
	Colleagues have mentioned the fact that the Government promised an end to boom and bust, and that there would be stability for ever more. They note that the Prime Minister, who used to be the Chancellor, began to believe that he had some unique financial Midas touch that had been denied to all those who had ever served in that post. As so often happens, that hubris has been shown up as a hollow failure. The Minister would go a long way to reassuring people that they will be able to trust the Government more in future if, on behalf of the Government, he sounded a note of humility or apology this afternoon.
	Other hon. Members have touched on the subject of accounting standards. In the EU, the European Commission is rapidly working up some proposals for changing accounting standards to tackle some of the systemic weaknesses in our system. May I suggest to the Minister that he work with colleagues to ensure that we do not look for any quick-fix solutions? We do not need the equivalent of Sarbanes-Oxley legislation to be visited on the City of London by a remote, unelected European Commission, when the British people are given no opportunity to vote out those who would be responsible for it. I ask the Minister to have caution in that regard.
	There has been a great debate about whether the current crisis is a body blow to capitalism and free markets. It has been suggested that the global Thatcherite revolution that brought the end of socialism has hit the buffers, with people realising that, after the nationalisation of the banks and so on, we need greater state control. However, I do not believe that. We have had a failure of regulation—a subject to which I hope the Minister will return—but we have also had a form of depersonalised capitalism. The people in the City responsible for pension funds and the directors of our largest companies tend to work with, spend and risk other people's money rather than their own. It is the lack of personal accountability and ownership of assets at the very heart of the capitalist system that has contributed to the irresponsible behaviour of the past few years. That has been fuelled, as I have said already, by the former Chancellor's hubris.
	My hon. Friend the Member for Chichester and the hon. Member for Somerton and Frome commented on the need to strengthen boards. Every time a problem threatens British business, Members of Parliament rightly want the boards of our companies to be strengthened. They believe that imprudence would somehow end if only we had more independent non-executive directors.
	I have some sympathy with that view, but the real problem is that there is a herd instinct in our depersonalised capitalist system. It means that people do not keep their jobs, get appointed to other boards or remain as investment analysts if they go against the herd. As a result, they all move together: they use other people's money, without being cognisant of the risks.
	Useful though independent non-executive directors can be, that herd instinct places massive pressure and responsibility on the regulator. Only the regulator has the overall framework responsibility for ensuring that our financial system, and the entire economy on which it relies, is soundly maintained.
	I have a number of questions for the Minister, but in particular I should like to know whether he agrees with my hon. Friend the Member for Chichester that the Chancellor of the Exchequer is ultimately responsible for the regulation of the UK economy and the risks that are taken. Nothing has shown so clearly as the events of the past few weeks how failures in that systemic risk management affect everyone in the country. It is essential that that responsibility is held, and is seen to be held, by an elected politician, in the form of the Chancellor of the Exchequer. I hope that the Minister will make a comment on that.
	However, the problems that we have seen are not all due to greedy bankers or failed regulators. They are also down to a failure of personal responsibility—and many of us will have been guilty of this at times—with people borrowing money that they could not pay back. There has rightly been criticism of banks that have given 125 per cent. mortgages, but for every one of those there has to be someone who signs the form and pledges that the money will be paid back. It is important that we send out the message that all of us, not just those who lend the money but those who borrow it irresponsibly, accept some responsibility for what has happened.
	One of the key principles behind creating a sounder system for the future will be that there must be greater transparency. We are all aware that the complex financial derivatives that have been created are often not understood by the directors of the banks trading in them. Most famously, of course, Barings crashed because of that.
	The principle of transparency needs to be maintained across the system. So far, no Minister has explained why the Government, acting on behalf of taxpayers, are taking on those enormous liabilities but not making them part of the national debt. I hope that the Minister will explain that to the House this afternoon, so that we can understand it. Off-balance-sheet borrowing guaranteed by the taxpayer—Enron economics—leads, in the private sector, to prison sentences. In this country, now in the 12th year of a Labour Government, private finance initiative projects have gone ahead specifically because they are designed to keep borrowing off the Government balance sheets, even though the Government are ultimately responsible for that finance.

Stewart Jackson: Is my hon. Friend aware that, if we add the off-balance-sheet PFI scheme debts to the liabilities that now encumber every taxpayer in this country, it adds up to about 54 per cent. of the United Kingdom's gross domestic product? As he will no doubt be aware, the last time we had that level of public debt, which was under a previous Labour Government, the International Monetary Fund was forced to step in and insist on swingeing public expenditure cuts. Does he agree that that would be a very serious development, but that it is very likely to happen, unless the Government take drastic action in the next year or so?

Graham Stuart: I agree with my hon. Friend, and in some ways I am even gloomier than he is. I feel that the costs are being masked. Ministers are suggesting that we will get all our money back. They have almost suggested that there will be a profit to the taxpayer as a result of the Government's intervention in the markets. I fear that there will be heavy costs for the taxpayer, and that the dark clouds will visit places such as Thorngumbald in my constituency.
	The earlier Labour Government who my hon. Friend mentioned were, of course, in exactly the position that he described. We had to be bailed out like a third-world country, and there were swingeing cuts to public services. We all remember the unburied bodies, and the rubbish cluttering our streets, yet here we are again. It is the 12th year of a Labour Government, and the Bank of England is again running out of money, with the only option being to print more of it.
	A Labour Government are impoverishing this country. Fortunately, a Conservative Government will come to power, but, unfortunately, they will yet again inherit an economic mess left behind by Labour utopian politicians. However, those politicians fail to deliver that utopia and, most importantly, spend the hard-working taxpayer's money. They always visit misery on those with the least.  [Interruption.] Labour Members do not like to hear that. At the end of that 12-year period, the gap between rich and poor has actually widened. The gap between the educational outcomes of the poorest in our society and those of people at the top have widened under a Labour Government. Health inequalities have widened under this Government. The hon. Member for Glasgow, North-West (John Robertson) may want to laugh because of his arrogant assumed moral superiority to those of us on the Conservative Benches, but I am proud of the fact that health, education and wealth gaps were narrower when we left power than they are today. That is before the cost of the Prime Minister's spending spree and irresponsibility is taken into account. However, it will come home to roost, and will have to be paid for by the British taxpayer.
	I would like the Minister to comment on the issue of transparency, and on the need to declare, on the Government books, the liabilities that the Government are taking on. In a similar vein, it is absolutely essential that we have some idea of the risks that are being taken. What is the extent of the liabilities? I know that the Chancellor was asked whether any limit would be put on liabilities. The Economic Secretary to the Treasury, when winding up yesterday's debate, said in response to that question that the Government would "do whatever it takes", repeating the mantra of the Prime Minister and the Chancellor. Is there to be no limit to the liabilities to which the Government are prepared to sign up, and no limit to the number of future generations who will pay additional taxes because of the bail-out, which resulted from the Government's failure of regulation? I hope that the Financial Secretary to the Treasury can reassure us on that point, because the issue should not, and cannot, be avoided. The House needs to hold the Executive to account, and if it cannot do so on the issue of vast liabilities, it really serves no purpose at all. The various hon. Members who commented on that point this afternoon were right to do so.
	I hope that the Minister will answer the question on Lloyds TSB and HBOS. The issue has been mentioned by others, so I mention it only in passing, but to repeat the argument briefly, the whole reason for bringing the two banks together, and for ignoring competition regulations, was to stop HBOS from failing, and to prevent a domino effect in the wider financial community. Now that the Government have intervened, that rationale is no longer there, and there will be loss of competition on the high street. If the Minister cannot give an answer today, please will he work with his colleagues on the matter and bring some common sense to it? It cannot be right for the consumer to have less choice on the high street while the state is intervening in our banks.
	I hope that the Minister will allow me to ask him this once again: what advice was given to local authorities? Why did so many of them leave their money in the Icelandic banks? The hon. Member for Somerton and Frome said that none of them could be blamed for doing so, and he may well be right, but when I telephoned my mother a few days ago, she said that she had considered the Icelandic banks. She had looked at their interest rates, which were very attractive, but thought that they looked a bit too good to be true, so she stuck with the Royal Bank of Scotland, with which she has shares. Admittedly, she said that she was equally disappointed with it. She accepted a lower rate of interest because she reckoned that if an offer seems too good to be true, it normally is, and that if one has savings that one cannot afford to lose, one should put them somewhere sensible and safe. She thought that the Royal Bank of Scotland was sensible and safe, and I hope that it will be in future. I would be interested to hear from the Minister on that point, and on why so much public money was invested with those Icelandic banks.
	I know that the Minister is aware that local authorities face a real crisis in social care provision. Already, people with moderate needs have lost their right to social care in the home. I have disabled constituents who can no longer get any support from the local authority because their needs are not severe enough; only those with critical or severe needs are getting that care. The loss of local authorities' money might lead to the withdrawal of even more of that social care. I know that Members on both sides of the House will spend time each week working constructively with their local council to try to ensure that vulnerable people get the support that councils struggle to provide from their budgets. I hope that we can count on that.
	I should declare an interest, as I am still an owner and director of a small business. I remember talking to others who ran businesses, whether in the pub or elsewhere, about the rapacious, greedy, fat, selfish, lazy banks and how they dealt with most small businesses. I always used to say, "There's only one thing worse than lazy, fat, rapacious, greedy banks, and that is bust ones." Banks may behave in the way that I describe, and they may, as the old saying goes, offer you an umbrella only when the sun is shining, but at least when they are in business they can lend money. In answer to the question asked by the hon. Member for Somerton and Frome, to whom I seem to be referring constantly, banks are in a different category. Without them, British business does not survive and prosper. The main banks therefore cannot be allowed to fail. That has been shown in the past weeks by the Government's action. The question is how the Government will ensure quid pro quo. How will they ensure that the banks are regulated and carry out their business prudentially? How will they ensure that there is no loss of creativity or innovation? We would not want that. So I welcome the fact that the banks are being saved, because they are absolutely necessary.
	I forgot to mention Equitable Life, and many of my constituents have written to me on that topic. Within the billions of pounds that are being spent to sort out the financial system, surely it would be right to rectify the injustice that has been visited on so many people who tried to be prudent. They saw Equitable Life as a safe place for their money. They had researched the matter, and they were not being greedy and wanting the highest possible returns. They had looked to place their money somewhere sound and safe, and they felt that they had had promises from Governments, Conservative and Labour, that regulation would protect them. As the Financial Secretary well knows, they have not been protected. The ombudsman found against the Government and those people cannot believe that this Labour Government, who claim to deliver justice for people, can continue to ignore their righteous pleas for fairness.
	The other comment that I remember from the streets of Thorngumbald on Saturday was from someone who said, "Surely your priority"—they see me as part of this place and of government in all its forms—"should be to protect those who are trying to pay their mortgages?" I agreed, and he asked, "Why then are you spending hundreds of thousands of pounds of taxpayers' money through the EU on a pay-off for the new Trade Secretary who has voluntarily moved to a new job?" How can that be right, especially for the Labour party, which claims to be on the side of ordinary people like my constituent, who is struggling to pay his bills and his mortgage?

Stephen Timms: We have had a wide-ranging debate, and several points have been made to which I wish to respond. I shall aim to do so briefly, given that I opened the debate. I wish to emphasise again that the motion has two parts. The first part is designed to replenish the contingency fund, which has been drawn on for the reasons that I set out. On a technical point, I should clarify a matter raised by the hon. Member for South-West Hertfordshire (Mr. Gauke). We are not drawing on the contingency fund for the recapitalisation programme. At £37 billion, that is much larger than the entire contingency fund. So the first part replenishes the fund after the calls that were made on it because we think that it would be imprudent to wait until the normal point of repayment late in December. We want to replenish it now, in case we want to make further calls on the fund over the coming weeks.
	The second part of the motion is in respect of the additional capital required—the £37 billion—for bank recapitalisation. Several hon. Members have queried the way in which that sum will be treated in the national accounts. It will be for the independent Office for National Statistics to make that judgment and decide how the deals will be classified in the public finances. In the case of Northern Rock, the decision was that the figures should count as part of the public debt, but the ONS will also decide how the subsequent deals should be accounted for.
	It is worth underlining the fact that the impact for the taxpayer and the public finances will be exceptional. It will mainly be temporary, but the liabilities being placed on the public sector balance sheet will be backed by financial assets. Our view—and it is widely shared by, for example, the Institute for Fiscal Studies in its comments on this issue in recent months—is that the sums should not be counted in our assessment of fiscal sustainability against the sustainable investment rule. We will, of course, produce an update on where we stand against the sustainable investment rule at the time of the pre-Budget report, and all the figures will then be in the public domain. Not to have taken action would have exposed the taxpayer to greater risk, and that is the basis for the package that we have put before the House.
	In the debate, the hon. Member for South-West Hertfordshire and others mentioned the relative proportions of preference shares to ordinary shares. We did say last week that the Government would also consider acting as underwriter for ordinary shares, so the announcements that we have made are in line with that. Following detailed discussions between the Treasury, the banks and the FSA, it became clear that it would be necessary to build up the core tier 1 capital ratio in the banks that intended to take advantage of the arrangements that we had proposed. That required the proportion of preference shares to be limited. The desirable proportions of preference shares to ordinary shares have appeared in the announcements, and Opposition Members have read out the numbers of preference shares and ordinary shares for the three banks taking advantage of recapitalisation.

David Gauke: If the Financial Secretary is saying that it was necessary to make the arrangements in the way in which the Government have with the proportion of ordinary shares that he has set out, why was that not clear when the deal was reached at 5 o'clock in the morning on Wednesday? That supports the widely held view that the deal was put together quickly. My hon. Friend the Member for Chichester (Mr. Tyrie) has pointed out the lack of preparation for recapitalisation.

Stephen Timms: Events certainly moved very quickly, and the Government had to respond very quickly. The conclusions that were reached and the precise figures that have been quoted in debate were the outcome of detailed discussions and analysis between the parties to which I have referred. I think that the judgments were right. We made it absolutely clear last week that we were open to underwriting ordinary shares as well. The package reflects not, as has been suggested, memorandums and articles, constraints or things that were not clear at the outset, but an assessment of the position in each of the institutions.

Andrew Tyrie: rose—

Stephen Timms: I cannot give way that often, but I will give way to the hon. Gentleman.

Andrew Tyrie: I am grateful to the Financial Secretary for giving way. Will he say when he first saw a worked-up plan for bank recapitalisation?

Stephen Timms: The hon. Gentleman knows that I returned to the Treasury only 10 days ago. [Hon. Members: "Hear, hear."] I am grateful to my hon. Friends and others for their support—one or two Opposition Members have made some kind remarks, for which I am grateful. I did not see anything before I returned to the Treasury. Indeed, I did not see the hon. Gentleman's article, so it was interesting to hear his comments. One can only wish that he had a greater degree of influence over Conservative Front Benchers when they reflect on these matters.
	We thought it important to safeguard the interests of taxpayers. The directors, who will appointed by the Government, will be qualified and independent, and they will not be civil servants. I see no reason why, for example, they should not sit on remuneration committees, which picks up a specific point raised in the debate. There will be no cash bonuses for directors this year, which is right.
	There has been a little bit of misunderstanding around the point that we do not want to return to the 2007 volume of lending. Lending has completely stopped to important parts of the economy, and we want it to resume. We want it to be available as it was in 2007, and we want to see marketing and competitively priced products.

Peter Bone: I am grateful to the Financial Secretary for remaining in the House for the whole of the debate. Having heard what he has said, the documents must be changed, because they clearly require lending to return to the 2007 level or more for three years. I do not know whether he has given an undertaking to change the offer document.

Stephen Timms: The hon. Gentleman is right about three years. We want to see lending start up again, because it has completely ground to a halt. Last year, there was lending to small businesses and home owners, and we want that to be in place again. As he has rightly said, we have required it for three years.
	The hon. Member for South-West Hertfordshire asked about the details of the £600 million. It is probably true that those have been given on the Floor of the House for the first time in this debate. However, earlier this week my right hon. Friend the Chancellor set out the details in a written statement. We made a payment to ING Direct for amounts in the Icelandic banks not covered by the Financial Services Compensation Scheme; that is how the £600 million figure arose.
	The hon. Gentleman asked about the increase in repossessions by Northern Rock. Northern Rock is managed at arm's length from the Government on a commercial basis; its repossession policy is a matter for the bank itself. In passing, however, I should point out that, at 1.18 per cent., Northern Rock's residential arrears level is below the average among UK members of the Council of Mortgage Lenders.
	We are setting up an arm's-length company to manage these taxpayer investments. Investment decisions will be made on a wholly commercial basis; there will be no ministerial interference of any kind. The company will be managed transparently and it will report regularly to Parliament. The Government-appointed directors to the banks will be independent and non-executive.
	The hon. Member for Twickenham (Dr. Cable) made a characteristically thoughtful contribution to the debate. I want to pick up on a specific point that he made. In due course, the Government will lay an order relating to compensation for shareholders and others whose rights may have been affected by the transfer of Bradford & Bingley into public ownership. I did not hear the debate that the hon. Gentleman had on the radio this morning, but we will bring that measure forward.
	The hon. Member for Gosport (Sir Peter Viggers) made some interesting points; he has made a number of interesting interventions in the debates of the past couple of weeks. It is very difficult to value illiquid assets in the context that we are talking about. The hon. Gentleman referred to his experience at Lloyd's. There is a real problem with asymmetries of information. If the taxpayer proceeded on that basis, they would be almost bound to lose out. However, the different arrangements that we have announced and that have been widely supported—and copied elsewhere—allow taxpayers to benefit from the upside.
	 It being three hours after the commencement of proceedings on the motion, Mr. Deputy Speaker  put the Question , pursuant to Order [14 October].
	 Resolved,
	That, for the year ending with 31st March 2009, for expenditure by HM Treasury—
	(1) further resources, not exceeding £1,000, be authorised for use as set out in HC1061, and
	(2) a further sum, not exceeding £42,200,000,000, be granted to Her Majesty out of the Consolidated Fund, to meet the costs as so set out.
	 Ordered,
	That a Bill be brought in on the foregoing resolutions: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Yvette Cooper, Stephen Timms, Angela Eagle, and Ian Pearson do prepare and bring it in.

Consolidated Fund (Appropriation) (No. 3) Bill

Mt. Stephen Timms accordingly presented a Bill to authorise the use of resources for the service of the year ending with 31 March 2009 and to apply a sum out of the Consolidated Fund to the service of that year; and to appropriate the supply authorised by this Act for the service of that year: And the same was read the First time; and ordered to be read a Second time this day, and to be printed. [Bill 148]

CONSOLIDATED FUND (APPROPRIATION) (NO. 3) BILL

Order for Second Reading read.
	 Question, That the Bill be now read a Second time,  put forthwith, pursuant to Order [14 October] and Standing Order No. 56 (Consolidated Fund Bills), and agreed to.
	 Bill accordingly read a Second time.
	 Question, That the Bill be now read a Third time,  put and agreed to.
	 Bill accordingly read the Third time, and passed.

Local Government

John Healey: I beg to move,
	That this House has considered the matter of local government.
	I welcome this debate on local government and look forward to the contributions that hon. Members on both sides of the House look set to make.
	The Department for Communities and Local Government does what it says on the tin. We are committed to local government delivering for communities. We challenge local government to be the best that it can, and we champion local government because we believe that it has a vital role to play in the way that our country and our communities prosper.

Charles Walker: Will the Minister give way?

John Healey: I am very early on in my speech, but I am delighted to give way to the hon. Gentleman.

Charles Walker: The Minister referred to championing local government. As he will know, local authorities of all complexions are struggling with losses as their money is locked up in Icelandic banks. Can he assure the House that he is helping counties such as Hertfordshire and Kent to get their money back from those banks and that he is working closely with the Chancellor to ensure the right outcome in the next few months?

John Healey: I can indeed. I am working closely not only with Treasury Ministers and the Treasury but with the Local Government Association and local government itself. If the hon. Gentleman will forgive me, I will deal with the position of councils and the Icelandic banks later, having met the LGA and Treasury Ministers earlier this afternoon.
	Some may ask why local government is important when the eyes of the country are on national Government and international governance during this global economic crisis. In these circumstances, local government is even more important. It touches people's lives—from keeping streets clean, maintaining parks and open spaces and collecting rubbish and recycling, to providing schools and care for the elderly. Local authorities run the services that people see and need every day.

Graham Stuart: Will the Minister give way?

John Healey: Of course.

Graham Stuart: I am extremely grateful to the Minister, who is as gracious as ever.
	On supporting the elderly, the biggest challenge facing local government is the provision of social care for an ageing population. The hon. Gentleman will be aware, not only as a Minister but from his constituency work, that in many cases only those with serious or severe needs receive support in their homes from local authorities. Will he comment on that and on his plans to ensure that local government can be there to help people when they most need it?

John Healey: Again, I can give the assurance sought. The hon. Gentleman is right: the population changes that we face over the next decade or two, and the changes in the population profile, pose enormous challenges for us all. That is why we are preparing a Green Paper to open up some long-term debate on this. It is why we commissioned an independent review of the guidance on how the entitlement is working in local authorities. It is also why, as he will have noted, when we were able to set the three-year spending review for local government for the first time ever, the authorities with social care responsibilities rightly saw the biggest increases in their budgets over those three years. When we combine the contribution of our formula grant with the grants that the Department of Health is making for these services, we see that over these three years there is a real-terms increase of about 6 per cent. each year for those authorities and for those services. In the longer term, that will not be enough, because the population pressures that the hon. Gentleman rightly mentions require us to rethink how we design, fund and deliver social care for the adult population, particularly for the increasing numbers of elderly people.

Graham Stuart: I am grateful to the Minister for mentioning three-year financing. Am I right in thinking that the level of finance going to local authorities and thus to social care is a fraction of that given to health? He said that attempts to create a joined-up system between health and social care will be looked at in the rethink. Will we try to ensure that those areas move together? It would make no sense to pour extra funds into health while a great deal less goes to social care, which is often just as needy.

John Healey: I hope that we will have something of a debate, as well as a discussion, but the hon. Gentleman is right. We see throughout the country that local authorities and parts of the health service, particularly go-ahead primary care trusts, are looking to create a joint budget and to joint-plan and joint-manage the sort of services that people need. In the end, people need the services that they need; they do not much care about which agency is responsible for delivering them. That institutional divide should not be apparent to them, and we should make every effort to reduce it further.

Hugo Swire: I entirely agree with what the Minister is saying. The provision of care, particularly long-term care, is of no consequence to those receiving it—other than that they get it—but the Minister will have to think long and hard with his Treasury colleagues about the impact of the economic downturn. In my constituency, we have an elderly population, a lot of whom are cared for in the longer term by social services, but a lot are privately cared for, and an element of them will no longer be able to afford to pay fees for nursing homes, care homes and so forth, so they will be necessarily thrown back to the public sector. What assessment is the Minister making of long-term care provision for elderly people as a result of the economic downturn?

John Healey: The hon. Gentleman anticipates an area of my remarks that deals with the impact of the credit crunch and the pressure on local government. If he and other hon. Members will forgive me, I shall make a little progress to get to those points. If they feel that I have not adequately covered them, I will give way again.
	Local government is important because it affects and touches directly people's lives. Local government knows its area. It knows what affects its residents and what concerns them most. It also spends our money, and more than a quarter of public sector spending is spent through local authorities. It would be a mistake for anyone to overlook the capacity, authority or influence of councils. Beyond that, I believe strongly that in this day and age, no part of Government—no Department or agency—can deal with the challenges it faces, or deliver the services it is charged with, on its own. The Home Secretary's local policing pledges, the jobs ambitions of the Secretary of State for Work and Pensions, and the skills aims of the Secretary of State for Innovation, Universities and Skills all increasingly require the alignment and the effort of others.
	No part of Government can any longer deliver a centralised and standardised service if it is to meet successfully the needs, aspiration and performance required in widely differing local areas, and no part of Government can any longer deliver successfully without considering the contribution of local government.

David Howarth: The Minister talked about the interaction of various Departments with local government and we have seen two particular schemes—one from the Department for Culture, Media and Sport on swimming and the other originating, I think, from the Department for Transport on concessionary fares—where the funding formulas have been extraordinarily crude and inappropriate, especially for two-tier local government. Can the Minister explain to the House the procedures for ensuring that when Departments other than his own deal with local government, they do so in a way that makes sense for local government, and that they consult his Department before they make detailed funding proposals?

John Healey: I can indeed. The Government have a principle of new burdens financing. It is one that the Secretary of State worked hard to insist upon with strong support from the Treasury. If any other Department or Secretary of State wishes to see things done that place a new burden of activity with new cost on local government, they pay for it. In the case of the concessionary travel, which was widely welcomed across the country, local authorities are receiving an additional £212 million this financial year to pay for the additional right for elderly people to travel free on buses, not only in their local authority area but anywhere in the country.  [Interruption.]

Andrew Turner: rose—

Daniel Kawczynski: rose—

John Healey: I am clear that I did not misunderstand, but I shall give way to the hon. Member for Isle of Wight (Mr. Turner).

Andrew Turner: The hon. Member for Cambridge (David Howarth) was worried not about the effect on the whole package, but the funding formula.

John Healey: If the hon. Member for Cambridge (David Howarth) checks  Hansard, he will read that he raised two concerns in one intervention. He mentioned the formula, and the answer to that point is simple. We held extensive consultation before this financial year, which included the Government's responding to local government's points. Local government wanted the funding for the additional part of the free travel right to be provided, not through the formula grant, in which we had already invested, but through a specific grant to local authorities. We have done that.

Daniel Kawczynski: The Minister stated that £212 million extra will be provided for concessionary travel and he also said that the Secretary of State for Transport should provide extra capital straight away. Why, therefore, was that funding unavailable last year, when taxpayers in Shrewsbury had to subsidise the local concessionary bus travel?

John Healey: The hon. Gentleman is wrong. Funding was available last year and the previous year. Two years' funding went into the formula grant—I believe that the amount was around £360 million. The money was available and given to local government. At that stage, it was designed precisely to fund for those two years the right of elderly and disabled people to travel free on buses in their area. As a result of the consultation—the hon. Member for Cambridge asked me how we went about that, and I told him—local government wanted the additional money to be paid instead through a specific grant to local authorities. We are doing that, and we consulted about the basis on which to do it. Clearly, there were options and we chose the one that we regarded as likely to produce the best result. However, no one could say with certainty before the introduction of the new right precisely how people would respond. The Secretary of State for Transport and I believe that, with £212 million this year alone to fund the additional right to travel free, there is enough money, according to anybody's best modelling, to cover the costs to local authorities.

Michael Penning: rose—

Andrew Turner: rose—

Daniel Kawczynski: rose—

John Healey: I shall give way.

Michael Penning: To which Member?

John Healey: I give way to the hon. Member for Hemel Hempstead (Mike Penning), because he has not yet intervened and he should have his turn.

Michael Penning: The Minister is generous. Does he realise that another matter is causing concern? Bus companies are encouraging my constituents to take out the free concessionary pass, regardless of whether they will use it, and charging the local authority £30 to do that. There is no point in issuing the pass to those who will not use it. If they intend to use it, it is wonderful, but if not, the bus companies get free money, which costs my constituents and the Treasury.

John Healey: The hon. Gentleman makes a specific point about his local area, and I am happy to ensure that the Secretary of State for Transport considers it.

David Howarth: Many Opposition Members are trying to make a point about the distribution formulae, which seem constantly to disadvantage specific sorts of authority—namely, those that provide many services to the surrounding area and to people who do not live in the local authority area. That means that local authorities with swimming pools provide swimming services to people outside their area, yet the funding formula gives them no credit for that. Those authorities also effectively pay for the bus journeys of people from outside their district. I do not want to seem ungrateful for the money—the total is very welcome—but the accumulation of the same error, affecting the same authorities over and over again, should surely be looked into.

John Healey: I do not accept that there has been an accumulation or repetition of the same error. We have done our best in consultation to reflect the likely demand in areas such as Cambridge, which are places to which people will wish to travel, particularly with the new right to free bus travel.

Andrew Turner: The problem facing the Isle of Wight, which is not subject to people travelling in from outside, at least not by bus, anyway— [ Laughter ]—is that normally we pay about £2 million towards the cost of travel for elderly people, but that has increased to £5 million. Can the Minister say whether he would be willing to look into that for the rest of this year, so that a new sum could be agreed that was nearer to £5 million, which is the cost of providing bus travel for elderly people?

John Healey: I have seen some of the estimates of projected cost from local authorities, which understandably want to make the case for their area. Of course Ministers are watching and want to receive reports on how patterns of travel appear to have been affected by the new right. We want as many people as possible to take up the new right, so we will do what the hon. Gentleman encourages us to do. However, I do not want to raise any expectations among local authorities, not least on the Isle of Wight, that when the picture is clearer as a result of that work they may be in line for extra money. A significant amount is going in this year, next year and in the third year of the current spending review, precisely to cover the cost of the new entitlement.
	Let me return to a point that was raised earlier. Local government is not immune to the credit crunch. Like families, firms and central Government, councils too must tighten their belts. Local government faces direct pressures as a result of the credit crunch, as well as the rising cost of fuel and other goods. It is more expensive to borrow, which has implications for local authorities, as it does for everyone else. Some councils report losing revenue from planning fees, for instance, as fewer applications are made for building projects. Finally, some councils also report increased demand for local government services and support. All that is happening within a tight financial climate.
	Let me turn to the consequences of the collapsed Icelandic banks. The Government have had two priorities. Our first is to do everything that we can to help councils, alongside other creditors, to get back the money that they had in the Icelandic banks. Our second priority is to work with the Local Government Association to assess the position, council by council, and agree action that we will take together where some are struggling. Indeed, along with the Economic Secretary to the Treasury I met local government leaders earlier this afternoon.
	As things stand, the LGA reports that there are 116 local authorities with £858 million in deposits in the four collapsed Icelandic banks. The LGA also tells us that 13 local authorities have reported that they might face short-term difficulties, but that they have no reason to think that wages will not be paid or that services will be put at risk.
	However, we want to be clearer and more confident about the position of these councils, and we want the message to go out that councils that could have severe short-term problems will not be on their own. I can therefore report to the House that financial experts are going into three authorities today, and that the LGA and I expect initial reports by the end of the day. Experts will continue to work with those councils after that. Specialists are also contacting the other 10 authorities today, and offering to help them to assess their position and their options. The Government and the LGA will provide further expertise to those councils if necessary.

Daniel Kawczynski: At the end of the day, one has to ask oneself why those councils invested taxpayers' money in an Icelandic bank. Shropshire county council and my local borough council were under the same pressure to maximise the return on their investments. Fortunately, however, they did not make that mistake. Why does the Minister think some councils in our country are having to invest their money abroad? Is it not simply because they are not getting enough from the Government?

John Healey: In 2004, fresh guidance was put in place for local councils considering their investments. Those authorities were not under pressure to maximise their investments, as the hon. Gentleman puts it. They were required to make investments prudently, and to give the highest priority to the security and liquidity of the investments that they made, and only then to consider yield in that context, and only to the extent that it was consistent with security and liquidity. I hope that that addresses his point.

Bob Neill: The result of the Minister's discussions has already started to be reported in the media. For the sake of openness, and to prevent rumours from going around, does he think it is now appropriate to tell us which local authorities are in that difficult situation? Furthermore, the level of exposure is sometimes now quoted as having moved up to about £950 million. Is it not time for the Government urgently to publish a comprehensive list not only of the local councils affected but of all the other authorities involved, including fire and rescue authorities, housing associations, regional development agencies and local authority-driven private finance initiative projects? As he rightly says, there is much collaborative working in the local government-related sector, and we really need a comprehensive understanding of all the exposure in the sector. We do not have that yet.

John Healey: That is precisely what we are working with the LGA to achieve. Having met its representatives just before this debate started, I can confirm that the figure they gave me was their best available figure, and that the current position is that £858 million has been invested by 116 local authorities, including fire and police authorities, in those four collapsed Icelandic banks. Our job, and our top priority, is now to work with the LGA to ensure that any council that reports that it might now face short-term difficulties is not left without support. That is why we are stepping in immediately to the 13 that have reported that they might face such short-term difficulties. As I have said, financial experts are going into three of those councils this afternoon, and the LGA and I expect an initial report by tonight. Those experts will then continue to work with those councils. Specialists are contacting the other 10 councils today, and offering to help them to assess their position and their options before reporting back to us.

Julia Goldsworthy: I am listening carefully to the information that the Minister is giving us. Clearly, things are moving on with every hour that goes by. He has still not answered the question asked by the hon. Member for Bromley and Chislehurst (Robert Neill), however. Why is he choosing not to reveal the names of the local authorities at this stage? People will be concerned that, although we were initially told that no council had done anything reckless and that no one would suffer short-term problems, we are now hearing that some people might. We appear to be hearing this information after the event, rather than in advance. To continue that theme, may I ask the Minister how many authorities the LGA is waiting to hear back from? If it has not heard from certain authorities, is not that a reason for concern?

John Healey: The LGA is pretty confident that it has the full picture, but that will change as the nature of these investments becomes clearer, and particularly as the dates of their maturity become clearer, as the consequences may be different for different councils.
	I would like to identify these councils, but I am not in a position to do so this afternoon. The reason is that those councils provided the information to the LGA, which then shared it with us, but it was given in confidence. It is in everyone's interest—and not least in the interest of having an open and full debate in the House and elsewhere—to identify the councils, but it is equally important to have discussed the issue and cleared it with those councils first. That is our first duty. The second duty then becomes ensuring that the information is made public as soon as possible so that people can see what action we are taking, form their judgments of it and, if that is what they feel, urge us frankly to do more.

Eric Pickles: The hon. Gentleman is being very gracious in giving way. I understand his position on disclosure because we are in the same position in having a list of roughly 116 councils and we will not release the information until the Government do, for the same reasons. There comes a point, however, when it is better to release than not to release. A number of people who do not understand local government finance may become unduly concerned about cuts in services and reliability, which is why it would be better for the information to be out in the open. Is the Minister relying on the LGA to look at housing associations, PFI bids and regional development agencies; and if not, where is he getting that information from? I crave his indulgence for a few seconds longer and ask him to outline the sort of remedies that will be applied, involving the release of payments both from and to the Government, so that taxpayers can have a reasonable assurance about what is likely to be available in respect of indebtedness.

John Healey: I will do my best to answer that triple-pronged intervention. First, I am grateful that the hon. Gentleman and his party adopt the same view as I do on disclosure. I share his view that it is important to be able to disclose and debate the issue fully and I hope that the LGA will be in a position to disclose that information so that we can all do so shortly. Secondly, we in the Department are beyond the local authorities, ensuring that we can gather the information about the position of other bodies that the hon. Gentleman mentioned.
	Finally, I have been clear from the outset, as I was with the LGA last week, that the first and most important step is to get financial experts into any councils that may face short-term difficulties in order to assist with their position, clarify their options and deal with any implications. If necessary—it is not necessary to speculate on this at present—we will look at the financial flexibilities that might be required to help the councils to deal with the situation. In the past, we have been able to do a number of things for councils that, for different reasons, faced severe financial difficulties. We are ready to consider the case for taking such steps again, as and when required, but it is important to do so on a council-by-council basis rather than look towards some generalised bail-out or underwriting of all local government deposits.

Julia Goldsworthy: rose—

Mark Hunter: rose—

John Healey: I give way to the hon. Lady first and then to her hon. Friend.

Julia Goldsworthy: I am grateful. The Government's response to the banking crisis has included a backstop and I wonder whether the Minister and his Department should make it clear that the same backstop will be there for local authorities as well. Even if there is no underwriting of debts, the Minister should perhaps clarify that capitalisation of any debts that cannot be recovered would provide a way forward for some councils that are unable to recover their deposits. Then, at the very least, council tax payers can be assured that they will not see in-year cuts or significant increases in council tax in the future in order to pay off any losses in one go.

John Healey: Capitalisation is a step that we have taken previously when councils have faced severe financial problems. If councils found themselves in such circumstances as a result of the problem with the Icelandic bank deposits and there was a case for doing so again, we would of course consider it.

Mark Hunter: The Minister has referred repeatedly to financial experts from the Department offering help to local authorities that have found themselves caught up in this crisis. Speaking as a former council leader, I am sure that councils would welcome any help and support that the Government are able to offer, but may I ask the Minister about another form of financial expertise which, although it has not been mentioned so far today, is central to the subject we are discussing? I refer to the consultants who have been giving advice to local authorities about their investments in Icelandic banks. Does he share my concern about that advice, and does he agree that his Department ought to hold an inquiry into it to establish whether there are—as many suspect—direct links between its quality and consistency and the investments made in those banks in Iceland?

John Healey: I do not accept the case that the hon. Gentleman is making. As Local Government Minister, I am responsible for the investment guidance that provides the framework within which local authorities, drawing on advice that they regard as sufficiently expert and informed, make their own investment decisions.
	In 2004, we changed the system that had previously involved central Government telling councils which institutions they should and should not invest in. As I said earlier, important local authorities now have access to good professional advice. Many have well-trained and qualified people on their staff.
	Local authorities are now well-informed investors and are in a position to make and explain judgments, including judgments on whom to use for advice and information. Ultimately, the Government's responsibility is to ensure, through the general requirements set out in our investment guidance, that they invest prudently and give proper priority to the questions of how safe and how readily redeemable the cash will be. In other words, the guidance makes it clear that they must make security and liquidity their top priorities.

David Howarth: rose—

John Healey: I give way first to my hon. Friend the Member for North-West Leicestershire (David Taylor).

David Taylor: I was actually waiting to intervene on the subject of housing in a moment or two, but, as a member of the Chartered Institute of Public Finance and Accountancy, may I suggest to the Minister that local government is better supplied with top-quality accounting and financial advice than the civil service? I am not being sarcastic. It is clear to anyone who examines the availability of professional people at the top levels of the civil service that those in local government are better qualified than those in central Government to reach a conclusion about these matters.

John Healey: My hon. Friend made the same point to me when I held other ministerial posts, commenting—from a highly qualified and expert viewpoint—on the professionalism in some parts of central Government, particularly in relation to financial affairs. In many ways, our responsibility in central Government is similar to that of local authorities as defined by the hon. Member for Cheadle (Mark Hunter). We must ensure that we can pick, and draw on, the best possible advice. If we do not have it in-house, we must ensure that we have access to it from outside.

David Howarth: rose—

John Healey: I will give way once more, and then I must continue my speech.

David Howarth: The Minister mentioned the guidance issued by central Government, which does not strike me as particularly specific. Authorities are advised to take into account security and liquidity, and then to obtain the best return that is possible given those two concerns. However, it seems that the Government have made a judgment on whether or not local authorities acted recklessly. Do the Government believe that trading on a single A rate for long-term debt and an F1 rate for short-term debt was all right or not at the time?

John Healey: All I can say to the hon. Gentleman about that is that, as far as we have seen, there has been no clear evidence that local authorities acted recklessly in the investments they made in these four Icelandic banks.
	Let me say this to Conservative Members: in the current economic circumstances more than ever, an ideology that drives arguments about a smaller state that does less in the modern world would fail the country and would fail the people who need support now and need confidence for the future. The current problems underline the need for active government and an active public sector to protect the poorest, to correct flaws in the market and to exert the sort of leverage needed to secure the proper role and contribution of the private sector. That is true now, in the current economic difficulties, and it is also true in the future for the long-term success of the economy in all parts of the country. This means we in central Government must give more strength to the leadership in local areas and give more scope to local authorities to set the priorities for their area.

David Taylor: The Minister knows I have considerable respect for his talent and his integrity, and I welcome the promotion to Privy Council status that he enjoyed a few days ago. Nevertheless, I have yet to hear in his contribution of the last 37 minutes the facts to bear out his opening remark that central Government have a considerable respect and regard for the potential of local government. I cite the example of housing, and ask whether he—or his ministerial colleague in winding up—will attempt to justify the rationale for excluding local authorities from the direct provision of affordable, decent, well-managed housing within an accountable framework? That is not what we have at present; instead, local authorities—such as that in north-west Leicestershire, with its 4,700 tenants—are currently testing the waters on coerced stock transfer. This is not a vote of confidence in local government's ability to shape the priorities for the areas for which it is responsible, and I greatly regret that.

John Healey: In fact, we have recently been changing the circumstances; we have been changing the potential, including for local authorities to begin to build again. If my hon. Friend wants further information on that, I am sure the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Tooting (Mr. Khan), will deal with it when he winds up.

David Taylor: The point is that local authorities should operate on the same level playing field as housing associations. If they have demonstrated a capacity, a track record and the experience to manage properly decent housing stock within their area, why are they not able to access the funding that is routinely and automatically given to housing associations if a stock transfer has occurred? That cannot be justifiable, either politically or financially.

John Healey: In the current circumstances, we are ready to rethink, and to reinforce the role of local authorities in the provision of housing and in support for people who need some help to stay in their homes. My hon. Friend will have seen some evidence of that in the housing support package we announced several weeks ago.
	My hon. Friend has also challenged me to demonstrate how central Government show their respect for the importance of local government. I simply say to him that there have been 11 successive years of above-inflation increases in Government grant to local councils. He, more than anyone, will recognise what a sea change that was after 1997, when the previous three years had seen a year-on-year real-terms cut in central Government funding for local government.
	The job is not done, which is why this year an extra £2.7 billion is going into local government. Next year there will be an extra £3 billion, and the year after that a further £3.15 billion on top. That means that every council in every part of the country will get an increase in its core grant from the Government in each of the next three years.
	This is not just about the amount of investment that we have made in local government. We have also put in place the first ever three-year funding settlement, so local authorities now have greater certainty and greater flexibility to make long-term plans and investments. Neither is it just about the three-year certainty of the core grant. Alongside that, last November and this February I was able to confirm 61 specific grants from seven different Departments, also for the three years of the current spending review period. Local authorities now get 43 grants paid in a single sum each month through the new area-based grant, with no strings attached to how they spend it.
	On top of that, ring-fenced restrictions on the spending of an extra £5 billion over the three years are being removed, giving local government more money and, crucially, more flexibility to make the decisions that are necessary and right for a particular area. We have also reduced the staggering 1,000 or so performance indicators required of local government to just under 200.
	On the other hand, we can examine the recent period and say that local government has responded with its own achievements. It has responded on service standards, with the Audit Commission showing four out of five authorities now rated good or excellent and three out of four improving well or strongly. Of course, for the second year running none is in the lowest performance category. It has responded on setting this year's budgets, with the average council tax rise at 4 per cent., the second lowest since the tax was introduced 15 years ago. It has responded also on council tax collection rates, which are up for the eighth year in a row.
	Finally, local government is making the running on efficiency. I was able to announce last month that the local government efficiency gains from the 2004 spending review period totalled £4.3 billion. Three quarters of that saving has directly released cash for reallocation to local priorities or to help to hold down council tax. That has been good news for households feeling the bite of the credit crunch, and it is the equivalent of £193 off the average band D council tax bill.
	Of course, local government can and must do more. Satisfaction with council services is decreasing despite a significant increase in service improvements across all local authorities. That is a performance paradox, but when satisfaction decreases it is important for local councils to deal with it.

Julia Goldsworthy: Does the Minister think that the reason for increasing dissatisfaction might be the lack of a clear link between what council tax payers pay and the proportion of their services that that money funds? Would it not be better to raise and spend more money locally than to continue to depend so much on central Government grants?

John Healey: No, I do not think that. That is an argument either for massively higher council tax—perhaps the hon. Lady is arguing for that—or, as a substitute, for a massive increase in income tax for many of those who work. She may or may not be advocating that, too. It is not quite clear what the Liberal party stands for in that regard at the moment.
	The other area of concern is shown in the latest citizenship survey, which told us in December that fewer than half of people feel well informed by their council about the services in their area, and that although two in five feel that they can influence decisions in their local area, the majority still do not. Just as politics does not end with politicians, so local government cannot stop in the town hall or the county hall. In times of uncertainty, democracy, at all levels, is more important than ever. People need to know that they can have a say in their circumstances and they need to know where their money is being spent on their priorities. Our White Paper "Communities in control" aims to pass more power into the hands of local people and local communities.
	Local government is important, more so than is properly recognised in a British parliamentary and political system that is traditionally very centralised. It is my long-held belief that local government is the point at which people can best connect with politics, that local democracy is central to strong communities and that local involvement with and trust in people is how we make public services respond best to people's needs. Local government can do more, and our Department's job is to see that it does.

Bob Neill: I acknowledge the Minister's comments about the importance of local government and its traditions, and the contribution it makes to democracy and this country's way of life. Local government is hugely important, and I say that as someone who started his political career in local government and spent about 16 years in it. I, like my Conservative colleagues, value the work that is done by men and women in local government; the work of officers and members should not be understated. I agree with the Minister on that point. He is right to say that much good work is done and to point out the degree to which local government is often better at achieving efficiency than centralised government—it is worth remembering that.
	Having said that, we must step back a little; the traditions that created local government were largely based on considerable local discretion, but that has been eroded over a number of years. That erosion is, cumulatively, the biggest threat to the future of local government. I do not make a partisan point, as the process happens under parties of all kinds. There is a tendency in the British state for central Government to suck in more power to themselves. That applies in respect of all people, and we have to be alert to it. Not for nothing do some independent academics describe Britain— certainly England, post-devolution—as the most centralised state in the western world. It is important to find remedies to that process.
	I am grateful to the Minister for updating us on his discussions, because this aspect of local government is uppermost in people's minds in the short term—I shall return to other, long-term matters later. I am grateful for his candour with us thus far, but I wish to press him again on two points that my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) and I have raised.
	First, there is a need for comprehensiveness in the list of where the exposure lies. I think that the Minister has understood that point, but it is important to hammer it on to the record. With respect, it may not be enough to rely simply on the Local Government Association in these circumstances, because we all know that many local services are delivered through housing associations and local private finance initiatives. We are aware that some universities are exposed, but what about the position of schools with devolved budgets? What about the position of the regional development agencies? We need a clear statement of the overall exposure of the local government sector. Secondly, I ask the Minister to consider again the question of setting out which local authorities are involved, as that is an important question of openness. Conservatives do not say those things in any partisan spirit, because it would assist everyone, including those in the local government sector, if we had clarity on both those points. I hope that the Minister will reflect on that as matters unfold.
	In the longer term, it seems that there are threats to local government from a number of underlying structural problems to which I have already alluded. The Minister said that the Department for Communities and Local Government does what it says on the tin, but I would say that it does so only up to a point. The Department has presided over a number of measures whereby local government does what it can and achieves what we have referred to despite central Government rather than because of them. It is important that we recognise that.

David Taylor: I worked in the field for a long time and was an elected local government member for quite a period, too. Does the hon. Gentleman recall major local government restructuring in 1973-74 and 1996-97? Both cases sprang from decisions made by the Government of whom he was a supporter and were poorly consulted on, ill-conceived and cost vastly more than was ever promised at the time. Does he recollect those years?

Bob Neill: I made it clear at the outset and have always said that a centralising tendency applies across the piece. Given that the hon. Gentleman recognises that fact and given that he has experience in the field, I am sure that if it ever comes to it he will vote against the three unitary reorganisation proposals that are being pushed forward with no consultation and no local support. I hope that he will follow through the logic of his argument.
	I want to consider the areas where there are impediments, and finance is one of them. The Minister quoted gross sums, as he has done on a number of occasions. However, he has to reflect on the fact that for the vast majority of local authorities and many people in this country the picture that he paints does not tally with reality. The distribution of the grant—never mind the size of the cake—is opaque, offers a number of perverse incentives and means that many local authorities have found themselves on the floor for years. Those authorities will find no benefit in the total increase in the cake, and we have never tackled the perverse incentives that are created for local authorities through a range of schemes. I hope that the Government will be prepared to consider on a cross-party basis the way in which indices of deprivation are sometimes changed and the lack of transparency in the criteria to see whether we can make the system more transparent.

John Healey: As the hon. Gentleman says, he has long experience of local government. He will remember that we introduced the system of floors in 2000. Would he abolish them?

Bob Neill: It seems to me that the Minister needs to reconsider the whole system of floors, caps and the grant formula. Would it not be much better if we could have greater independence in the setting of the criteria and if, rather than leaving local authorities caught with the cap, we adopted my party's proposal that council tax increases of a certain size should be put to residents in a referendum? That would surely be democracy.

Daniel Kawczynski: My hon. Friend is making a powerful argument about the huge differences in funding for local areas. May I give him an exact example? Every child in Shropshire receives only about £3,300 a year for their education, whereas the figure in other parts of the country can be as high as £8,000 or £9,000. Those huge regional differences have put various primary schools in Shropshire under the threat of closure.

Bob Neill: My hon. Friend makes a valid point that can be recognised across the House, and it strikes me, representing as I do a suburban constituency—[Hon. Members: "Certainly on our side."] My hon. Friends say that that point is certainly recognised on this side of the House, and the lack of transparency in the system creates a fear and a belief in many parts of the country that the formula can be manipulated in a way that is, frankly, not objective. That brings local government into disrepute and prevents it from delivering. We need to look more broadly at local government finance.

Julia Goldsworthy: I am listening to the hon. Gentleman very carefully, and I agree with much of what says about the vagaries of the existing funding formula. However, does he agree that his own party's proposals for council tax rebates would reinforce the problems? The better funded councils would be in a better position to offer no increase in council tax, and would benefit from what would in effect be a direct grant from central Government. In contrast, councils funded at the lowest levels would find it most difficult to hold down council tax increases.

Bob Neill: With every respect to the hon. Lady, I think that she misses the point. We want to tackle the problem that, despite the supposedly record levels of spending, the way in which the money has trickled down has meant that council tax has doubled under this Government. That is of increasing concern at a time of economic pressure—and I do not think that it would be much helped by a local income tax, either.

David Taylor: Will the hon. Gentleman give way?

Bob Neill: I shall finish my point, and then happily give way. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) fails to take on board the point that we are not seeking to compel local authorities to keep council tax down—rather, we want to work with local authorities and give them an incentive to do so by releasing funding identified from central budgets. If they can get to 2.5 per cent. they will get match funding, which will mean that they can reduce their budget and so have a council tax freeze. In the current circumstances, I would have hoped that the Liberal Democrat party welcomed a proposal that reduces costs to householders. We have come up with a specific proposal: it would lead to savings and could be implemented, but it is clear that the Liberal Democrats prefer high levels of taxation.

David Taylor: The hon. Gentleman is a well regarded and respected local authority member for the part of Greater London that he represents. I am sure that he will recall the regular allegations during the Conservative years—and they were often substantiated—of a skew towards the London area. Particular beneficiaries were the London boroughs of Westminster, where we are now, and of Wandsworth, which is about 3 miles down the road. However, my key point has to do with his remark that council tax has doubled over the years of this Government. That is true, but the average rate of increase in the 11 and a half years that this Government have been in power has been less than it was in the first five years after the previous Conservative Government introduced council tax in 1992.

Bob Neill: With respect, the fact that the hon. Gentleman feels that he has to resort to that type of allegation shows that he is rather behind the pace of the argument. Certainly, no one who represented an authority in suburban London that has been on the floor for six or seven years would say that Westminster or Wandsworth were benefiting from some illicit screwing—I am sorry, I mean skewing—of the system. [ Interruption.] Some might say that I was probably right the first time.
	The system is getting to the stage where it is close to being broken. The Government are unwilling to grasp the nettle and make a serious change to the system: instead, they prefer to continue to apply a sticking plaster to it, and that is what is causing the ongoing problems.

John Healey: I am grateful to the hon. Gentleman for giving way a second time, and I was very interested in his council tax proposals. Good spin, flaky substance—it is not clear whether the 2.5 per cent that he has mentioned would be a budget increase or a council tax increase. However, does he recognise who said, "Talking about an efficiency drive is the one of the oldest tricks in the book, but the trouble is that too often it is just that—a trick"? It was his party leader, in a speech made in Birmingham in May.

Bob Neill: In a previous incarnation, the Minister was not beyond referring to efficiency drives himself. The Gershon review was not without an interest in efficiency drives, so that might not be the best point for him to make. Moreover, if he will forgive my saying so, I will not take a lesson in spin from him, given the sudden detour into the ideology of the big or small state in local government.
	There is a lack of transparency in the local government finance system. The hon. Member for Cambridge (David Howarth) made a very useful point about a number of perverse incentives attached to specific grants and to the distribution formula. As it happens, that situation is mirrored in my local authority. The swimming project, for example, does not take account of our population demographics. Bromley would actually be worse off under the scheme. Despite the Minister's laudable ambition, there does not yet seem to be a co-ordination of criteria across the various Departments that fund local government.
	The multiplicity of funding streams is also an issue. A very high percentage of grant remains ring-fenced and, although I acknowledge there has been some reduction in that practice, its application reduces local discretion. If local authorities are squeezed as a result of the caps-and-ceilings regime and face a higher percentage of ring-fencing, their scope to shift money around within their budgets to reflect local priorities is significantly reduced.

Mark Hunter: The hon. Gentleman was dismissive of the comment made by my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy), who is on our Front Bench. That is particularly unfair given the vagueness of the alternative local government finance proposals that the Conservative party is putting forward. I have listened closely to what he has to say, and I agree somewhat with the Minister: the hon. Gentleman is good on analysis, but there is not actually any Conservative alternative. Perhaps he could use some of the time remaining to him to tell us what the Conservatives propose as an alternative to the current arrangements. He may not agree with us, but he knows that the Liberal Democrats advocate local income tax because it addresses the fundamental problem with the current system, which is that council tax is not related to ability to pay. Until that nettle is grasped, the system will continue to be unfair to many millions of people across the UK. He may not agree with our policy, but at least we have—

Mr. Deputy Speaker: Order. That intervention was definitely becoming a speech.

Bob Neill: It is interesting that the hon. Gentleman is anxious to get away from council tax; I am not surprised when I look at the rates of council tax charged by Liberal Democrat authorities, which are among the highest in the country. I am conscious that that is a sore point for him. With respect, the figures in my party's proposal were checked by the Institute for Fiscal Studies, and are based on savings identified by the National Audit Office, which indicated that there is something like five times the spend on the same items in the private sector.

Julia Goldsworthy: rose—

Bob Neill: I have been generous to the hon. Lady, and I would like to make a little more progress. The reality is that there is a failure to grasp the fact that a doubling of council tax, particularly in current circumstances, is unacceptable. Only one party in this House has come up with a proposal to freeze the burden of council tax on householders. The others just argue about the level of the increase, and that is not what people are looking for. There is a real issue as far as financing is concerned. There is a link, of course; because there is a lack of transparency and a multiplicity of funding streams, and because there is still too heavy a reliance on ring-fencing, it is difficult to give local communities incentives to take on board growth, new populations and new developments. They do not see any return. They lose out as a result of the perverse operations of clawback. Only yesterday, the Minister had drawn to his attention what seems to be a perverse consequence of the Prime Minister's initiative, introduced when he was Chancellor, to change the rules on empty commercial property relief. There are still too many opportunities for perverse and unintended consequences to occur in an over-complicated system.
	Another thing that reduces local authorities' discretion is micro-management through the targets regime. I appreciate that the number of targets has been reduced from about 1,000, but I have to ask the Minister: who brought in the 1,000 in the first place? It is a case of the sinner repenting a bit. However, there are still 198 "sins" in place. Moses managed with 10 commandments, and I do not see why the Government cannot get a bit closer to that, frankly. It seems that there is still a significant measure of micro-management. Again, many independent observers note that a perverse consequence of the current target system is that very often, local authorities and their officers are pushed to tick the box, rather than deliver the service. They have to tick the box to get the funding, although ticking the box may not deliver what is needed locally. That situation cannot be allowed to continue.
	As well as the centralised target regime, the third aspect that reduces local discretion is the artificial regional agenda. It is artificial because most of the Government offices bear no relation to anybody's sense of community, identity or history, or to patterns of economic activity. It is very difficult to see how the Government can claim to be giving powers back to local communities if they are taking more and more powers in relation to issues that really matter, such as what housing is built where, how planning decisions are taken and by whom. How can the Government make that claim if they transfer, for example, regional planning and housing powers from an indirectly elected regional assembly to an even less directly elected regional development agency? That is just shifting the deckchairs around on the Titanic. If the Government are serious about returning powers to local government, they should scrap the regional planning regime and the regional spatial strategies, and hand those powers back to local authorities. That would be a real transfer of power back to local people, but the Government shy away from doing that.

Julia Goldsworthy: The hon. Gentleman mentioned the targets and priorities that are set by local councils. The number of targets may have been reduced, but I know of local authorities that have been very reluctant to set some of the priorities imposed by the remaining targets, such as the preventing violent extremism priority.

Bob Neill: The hon. Lady makes an interesting point. There is real concern about the relevance of some of the targets, and I shall touch on some of those later. However, my hon. Friend the Member for Wycombe (Mr. Goodman) has taken a particular interest in work on extremism and community cohesion and he will deal with that specifically when he winds up. I hope the hon. Lady will therefore forgive me if I do not go into more detail.
	The artificial regional agenda also inhibits councillors in doing their job. They are inhibited by an over-engineered Standards Board regime, which should be scrapped. Failure to tackle the gold-plating of the code of conduct by many monitoring officers inhibits many councillors in representing their constituents honestly and openly when it comes to planning applications. When the Local Government and Public Involvement in Health Act 2007 was considered in Committee, the Minister's predecessor promised to take a look at the concerns that are regularly raised by councillors of all political persuasions about the operation of the common law predetermination rules in relation to the consideration of planning matters and how they interface with the code of conduct. We have heard nothing more since. It is daft if local councillors feel inhibited about saying whether they oppose a particular development on open space in their ward because of a fear that they might then be regarded as having pre-determined the issue. That is the sort of thing that undermines local democracy, and the Government are not tackling it, despite the opportunity to do so.

Mark Hunter: I agree entirely with the hon. Gentleman about the iniquity of the planning system. Does he agree with me that to tackle that problem truly we would need to give objectors the same right of appeal as applicants? Until that unfairness is addressed, the system will continue to let down many people.

Bob Neill: That is an interesting point, but I shall not commit myself on it. We have to try to strike a balance. People need to feel that they have had their say, and that is why we are concerned about aspects of the Planning Bill, which will make it harder for people to have their say on planning matters, especially those on a large scale, by removing the right to representation and to cross-examine and—through clause 151—restricting the ability of authorities to take action when nuisance and pollution arise as a result of developments.

Susan Kramer: I thank the hon. Gentleman for giving way.

Michael Penning: Have you just wandered in?

Susan Kramer: I have been in for a while.
	Does the hon. Gentleman agree that there is a real problem in the planning system because of the lack of authority for local government to rule in the best interests of the local community? There is a developer bias because of law imposed from Whitehall.

Bob Neill: We dealt with that point before the hon. Lady arrived. We need to get the balance right, and it is currently wrong for the reasons that we have set out. Restrictions are placed on councillors in the operation of planning.
	I have referred to the needless reorganisation of structures in local government. We have seen the Government's proposal for large unitary councils, which is based on a methodology that has been comprehensively discredited. If anyone has not read the book "Botched Business"—the title is appropriate—by Professors Chisholm and Leach, I urge them to do so. It demonstrates that the financial claims for that reorganisation were based on fundamentally flawed methodology. We have seen that work out in practice in Northumberland, where what was alleged to be a saving of about £17 million is turning into an overspend of about £55 million. To use the Minister's phrase, it simply did not deliver what it said on the tin. Against that background, it is not surprising that Professors Chisholm and Leach describe the Department's conduct as verging
	"upon corrupting the body politic".
	That is their allegation as independent academics. When one reads the book—I am sure that the Minister has read it, because I know that he is diligent—the case is compelling.
	In the current circumstances, where local authorities face financial issues, is it not time for the Minister quietly to kill off any further structural change, particularly when local authorities are doing a great deal of good work together? In Somerset, for example, the county council and district councils of different political persuasions are working together on development, waste and other key issues. Successful local authorities are working together in Devon, and I know that a district and county council in Essex have a jointly appointed chief executive. There is considerable collaborative work in Kent, and a number of London boroughs are working more closely not only among themselves, but with other organisations, such as strategic health authorities and primary care trusts. If the Minister were to get away from the obsession with structural change, we could get on with collaborative working, which would leave governance systems and accountability in place so people would still have a sense of ownership of their communities rather than alienation, which we risk at the moment.
	There is a different way forward. The Minister has referred to the White Paper, which is not the way forward—if it is the answer, then the question is wrong. The idea that we will achieve the laudable objective, about which I agree with the Minister, of getting more people from a greater range of backgrounds engaged with local government in more imaginative ways is not met by the White Paper. I do not dispute that the White Paper includes some useful and helpful ideas. At the end of the day, however, the idea that one can cure the democratic deficit, which genuinely exists in this country, by offering people who turn out to vote a free doughnut or entry into a prize draw to win an analogue radio, or by allowing people who are elected not to attend council meetings and text in their vote, trivialises rather than enhances local government. What would enhance local government is the abolition of all the central controls and constraints to which I referred earlier.
	This is an opportune time for a debate on local government. I never doubt the Minister's good intentions, but I fear that he and the Department are presiding over a litany of missed opportunities. I have heard nothing today, and I have seen nothing in the White Paper, that suggests that things will get any better until there is a central change, which many people hope for in due course.

Ronnie Campbell: I feel a bit old when I mention this, but I am reminded of 1969, when I was elected to the local authority as a young lad. I remember the first meeting that I went to. I knocked on the door, went to the chamber and sat down, but there were no agendas. I was told that they would come later and that they were being debated next door in a sub-committee or some such. Later, I put all that down to the right-wing Stalinists—in the Labour party, I might add, Minister. They controlled everything and would come into the meeting saying, "This is what we are going to do." So I had a rough time when I was first elected.
	In those days no members of the public were allowed into the committee meetings, and of course none of the press were. I remember fighting with a Liberal on the council to reopen the meetings and get the press in. I was not very popular with the Stalinists, of course, but we did fight. As I listen to the debate today, it is obvious that local government has come a long way since then. It is wide open, and, up to a point, I am very proud of it.
	I could be away home—like everybody else, it seems—but I am here to talk about Northumberland. Northumberland is to be one of the unitary authorities mentioned by the Minister; incidentally, the people of the county did not want that. They still do not want it, and we had a ballot to say that we did not want it, but nobody took any notice—perhaps we are back to the Stalinists again. We have to be careful not to drift back to the old days of 1969: we have to listen to what the people say.
	The Minister has been up to Northumberland a few times, but I am sorry to tell him that he has been told a few porkies. I said as much in a couple of letters that I sent him—but he replied that, no, everything was rosy in the garden. I am afraid that it is not. Northumberland is in a big plight. The six district councils are being taken over next April and neither I nor anybody else knows what is going to happen; Northumberland is like the banking industry in many ways. It really is in a plight. I am told by our colleagues who sit on the council that no savings of any kind will be made in Northumberland in the next five years—so much for the points made by those who wanted the unitary authority. They said, "We'll save this and save that. We'll save £18 million a year." I do not think that that is on the cards, Minister—that has all gone.
	Cuts will be made. This year, the authority is looking at £27 million of cuts—this year alone, until April—and it is talking about a cut over the next five years of £69 million in local government in Northumberland. Where will that come from? The issue is services. Northumberland has an ageing population; just the other day, we got the figures for Blyth Valley constituency—51 per cent. of people there are old. A lot of them will depend on a lot of services. A cut of £69 million would be pretty heavy on social services and the like.
	Amalgamation has brought the added problem of redundancies. It is a minefield. There is untruth upon untruth—figures here, figures there, but we are all fighting in the dark. I am afraid that the Liberal Democrats are the biggest party on the council and they are running it at the minute. TUPE does not exist for the Liberals—so much for the trade union connections that they like to claim; they do not even recognise those regulations. At least our side does, and does a little bit with them.

Julia Goldsworthy: indicated dissent.

Ronnie Campbell: They do not recognise them; the hon. Lady should get in touch with the leader of Northumberland council and ask him what TUPE is—he will not know. It is a trade union arrangement for those who are made redundant or sacked, so that things are done properly. But they are not being done properly, and I will say for why. Blyth Valley and Wansbeck are the most populated areas in Northumberland, which has a total of about 300,000 people; the other areas are all rural. When they did the interviews for the chief executive, not one came from Blyth Valley or Wansbeck. Three or four came from Berwick, Alnwick, and Hexham. Blyth Valley council has two "beacon" statuses and an "excellent" status. Last week, it was announced that it is in the top 10 of the best run district councils in Great Britain, yet not one chief officer has been elected to the new unitary authority.

Julia Goldsworthy: Not elected.

Ronnie Campbell: Sorry, not elected—appointed. They should be elected; that is a good idea.
	I wonder what is going on. Could it be that they do not have a Liberal party card? Is that how it works? These are the two biggest district councils in Northumberland, and not one of their chief officers has been appointed. That worries me.
	Now there are going to be redundancies because the six councils disappear next year. The £69 million debt is creating problems. Figures have been bandied around. Even the Liberals on Northumberland county council have said that 20 per cent. of staff will lose their jobs next April. We think that it will be 1,900 to 2,000 people, or perhaps 3,000. What is even worse is that workers at the county council and the shire council are being told that their jobs are safe and that all the jobs that are to be lost will be at the district councils. All the people sitting in the ivory tower in county hall are going to be saved. I do not know how that works, because under the trade union laws they should all be applying for their own jobs. We will leave that to one side and work that one out when it happens.
	It is a right plight. Now we are going to have cuts—£27 million this year, £69 million over three years. There have been cutbacks on some projects. The Liberal-controlled authority is already telling the district councils that they cannot spend on the capital programme. We should remember that these councils had a capital programme that they put to the people and got elected. Now they are being told they cannot spend that money—"You can't do this, you can't do that, we need all that money because we've got a black hole here." In all fairness to the Liberals, I do not blame them entirely for the black hole, because our previous administration made a mess of it as well.  [ Interruption . ] However, they are not making a very good job of it at the moment—I can tell them that for nothing.
	An even bigger problem in Northumberland is that of the Icelandic banks. My local financial officer, Simon Potts—an excellent officer who did not get a job, by the way; if he put in for one, he did not get anywhere—was told in April that Blyth Valley borough council should get its money out, which he duly did. In April, Northumberland county council was putting money in—in fact, it was doing it as recently as June and July. Everybody seemed to get the news in March or April that they should get their money out because it was not very steady out there, yet Northumberland was still putting it in. The Minister mentioned a few councils—Northumberland must be one of them. I am sure that his lads will come back with the truth—I hope so, because every time anybody goes up there so many porkies are told it is unbelievable.
	The officers who were putting money in when they should not have been—when everyone else was told—are now on higher salaries. Of course, not only had they put that money in, but news has just come in, hot off the press, that they had put £11 million of pension money into Lehman Brothers. We are told that that money is okay and is safe, and that we are going to get it back. I hope that the Minister is listening and that he has his team up there. He can inquire about the £11 million in the pension fund for Northumberland county council, which is with Lehman Brothers. Will the council get anything back now that Lehmans has gone bust? That is a problem in itself.
	What will happen in Northumberland? Services are going to be cut. It is too late to let the districts run their own councils, as the Tories wanted. I agree with that—I did not want a unitary authority. It is too big, and too far removed from the people. It is better if we have smaller councils running a lot of services, because they are near people and can handle things better. The Minister nearly spiked my guns by announcing that councils are being inquired into. He might have a team up there now, but I was going to ask him to have an inquiry into the running of Northumberland to ascertain the truth.
	It is a bit of a bind when the Minister comes to Northumberland—he has been up a couple of times—to make statements but those statement are wrong. He is becoming a bit of a laughing stock. I would rather have the truth. I would rather the Minister sent a team up to Northumberland to find out the truth. It is not all down to the Liberals; most of it happened beforehand, but the way the Liberals are going about things now is just as bad. If it is not too late, I would like an inquiry team to go to Northumberland to find out what the situation is really like. I hope that I can be around at that time.

Julia Goldsworthy: I was pleased to hear that the hon. Member for Blyth Valley (Mr. Campbell) got on well with the Liberals when he was first elected to the council, but sorry to hear that relations seem to have deteriorated somewhat since then.
	Listening to what the hon. Gentleman said, and what the hon. Member for Bromley and Chislehurst (Robert Neill) said, I found they seemed resistant to change. There is a real danger in local government that one can turn into a pointy-headed policy wonk who obsesses about finding the right structures to deliver services and interesting new ways of financing local government. It is easy to be sucked into that, but we should not be resistant to change for the sake of it. From the experiences I have had in my constituency in Cornwall, I can agree that the unitary experience has not been perfect, and it may not be right for every community, but we have tried to look at where we would like to be, and the journey we might take to get there, in order to draw down more powers and deliver more locally than the districts have done. We should have ambitions, not just simply say that the status quo is right and should not be changed at any cost.
	I can think of countless examples of people coming to me who have tried to navigate their way through the local government system, which can be confusing and complicated, and the existing structures sometimes do not help. An individual came to see me because the roads had not been cleaned on Falmouth sea front. That sounds pretty straightforward. What actually happens is that Cornwall county council give a pot of money to Falmouth town council, which then subcontracts the work to Carrick district council. When we try to find out what has gone wrong, we are sent round in a circle by people saying, "It's not really our responsibility—the pot of money has gone somewhere else." If such inefficiencies can be tackled, change surely has to be welcomed.

Bob Neill: I thank the hon. Lady for reciprocally giving way. Do the Liberal Democrats support or oppose the unitary proposals in her neighbouring county of Devon and in, for example, Norfolk? Do they support the proposals for enhanced two-tier working, along with the pathfinder schemes that all the district councils in those authorities have presented?

Julia Goldsworthy: Unlike the Conservative party, we are not trying to impose a central party view unilaterally on our local government representatives. It is interesting to note that many councils that make unitary proposals are Conservative controlled—clearly, the issue is not settled in that party. It is a case of horses for courses. Having witnessed the unitary process close at hand, it is clear that there are problems with it, but we should not throw away opportunities.
	The Liberal Democrat party has its roots in pavement politics and local government, as the hon. Member for Blyth Valley remembers. We cannot disagree with the sentiments that the Minister and the hon. Member for Bromley and Chislehurst expressed about the importance of local government, its record on delivering local services and the potential to deliver even more. However, although there may be consensus about talking the talk, perhaps we part company on walking the walk—neither the Government nor the Conservatives are yet in a position to do that. The challenge is not only to talk about but to deliver localism.
	I shall focus on local councils' exposure to the collapse of the Icelandic banks because we have not had an opportunity to debate that on the Floor of the House. We had a statement yesterday, but there has been no opportunity for discussion since the story broke some 10 days ago. It is a fundamental issue for local government and has a massive impact on council tax payers' confidence in their local authorities. We know that 116 authorities—not only councils, but police, fire and transport authorities, as well as other organisations, such as hospital trusts and charities—have been affected so far. Although, on average, the exposure is less than 10 per cent. of authorities' short-term investment, the experiences of those affected vary greatly.
	Some councils have reported investments that they made a year or even longer ago. It was difficult to get out of them and they now have to deal with the problems. I have heard reports of councils that made investments as late as the end of September or the beginning of October, when, as we now know, those banks were experiencing serious troubles and were not a good investment choice.
	The extent of exposure has also been different. For example, Kent is at one extreme, with an exposure of £50 million. However, some of the smaller amounts might prove more troublesome. For example, a small amount in absolute terms that is frozen or in a bank in Iceland might represent smaller district councils' reserves.
	I am slightly troubled by the noises from the Local Government Association and the Department to date. We were initially told that no councils had made reckless decisions or faced immediate short-term difficulties, but that statement was subsequently qualified, and we heard that many councils had made sound investment decisions. However, finance officers and rapid response teams are going into several authorities to assess their situation and their ability to deal with the short-term position. That suggests that matters are more serious than we were first led to believe.
	Local authorities may struggle in the short-term with their ability to pay Government business rates, because maturing deposits were intended to cover those payments. There might be difficulties in balancing the agreed budget because interest receipts are a major source of revenue, especially for smaller councils, in funding services. Capital projects may have to be rescheduled and there may be a need for greater short-term borrowing, which could prove more expensive. In an extreme case, if there is no repayment for some of those affected, their reserves may be exhausted.
	Given that context, it was worrying to hear a claim that nobody would be affected in the short term and that all the bills would be paid. There is potential for significant problems and I hope that the Minister can comment on that. Could he give us any indication of the kinds of councils that are alerting the Government to the shorter-term problems? Is it the smaller authorities that are struggling, or is it those across the whole gamut of authorities that have been exposed? Any detail that the Minister could provide might help us to understand the more general problems. The feedback that I have received suggests that district councils might be experiencing the most difficulties in managing the treasury services that they offer, because they do so on a much smaller scale.
	Yesterday's statement was helpful in providing more details about the Government's programme of support. We support the action that the Government are taking. We know that officials have gone to Iceland and that there are discussions with the UK subsidiaries. There have been indications on BBC news that Ernst and Young has said we may know by mid-November how much of those assets could be returned. Will the Minister say how optimistic he is that all those deposits will be returned and when councils might hope to see them back in their accounts?
	I also welcome the analysis of the effects of the exposure that the Department has commissioned, but will the Minister say when he expects it to be completed? From what he said earlier, it sounds as though it should be completed fairly shortly, but can we expect an oral statement, so that there is an opportunity to discuss the issue in the House?
	I was going to ask whether the rapid response unit had been called out, but we now know that it has been. It is reassuring to know that there is a team of experts going out to support those councils that need support. My only question is whether they are in-house experts or whether the Department is seeking advice from external organisations. If so, could the Minister say which ones?

John Healey: The financial experts who have gone to the three councils that I have mentioned today are from other local authorities. It is entirely within the spirit of the arrangements in place for the sector to offer support within the sector wherever possible. These experts are not people from our central Department.

Julia Goldsworthy: I am grateful to the Minister for that helpful reply. Councils are concerned not only that some councils have deposited money in Icelandic banks, but that they have made loans to other councils. If those councils are affected, that might have a knock-on effect on other councils. Can the Minister therefore enlighten us on what contact there has been with those councils that are not directly exposed, but which might be indirectly exposed?
	We have a five-point plan, but there are other things that the Department could be doing. I hope that the Minister will reassure us that the Department is keen to take steps to ensure that it stays on top of the situation. Concerns have been raised that responses could have been made a bit quicker. I feel that we are learning that the Government are responding to events rather than anticipating them. Part of that worry is down to the fact that there is still such a lack of clarity about what is going on. For example, we do not just need an urgent analysis of the effects of local authorities' exposure to those banks; we need an analysis of what the causes might be.
	When I raised that with the Secretary of State yesterday, I was accused of trying to play the blame game when we should be trying to resolve the issues. However, unless we know what has gone wrong, how can we prevent it from happening again? With so many councils affected, we are not talking about one council making a fundamental mistake; we could be talking about a structural problem that needs to be addressed. We need to find out what went wrong.
	There also needs to be an investigation into whether the guidance was explicit enough. It seems to be widely drawn and has been interpreted in many ways. Councils have responded to the guidance in different ways, either by looking ahead to see whether the banks' ratings would be downgraded in future or by reacting only when the ratings have already been downgraded, when it is too late.

Ronnie Campbell: Is it not the case that, when local authorities have money to invest, they will go to wherever they can get the highest interest? Obviously, the Icelandic banks were offering high interest and the investments looked very good. I take the hon. Lady's point that some of the authorities might have been encouraged to invest in those banks, and that perhaps they should not have done so, but everyone goes for the highest rate.

Julia Goldsworthy: I am not saying that councils have been reckless; I am saying that there have been some very different responses to, and interpretations of, the guidance.

David Howarth: My information is that, in many cases, the councils were not going for the highest rate when they placed their money with the Icelandic banks, and that there were other, more risky, offers being made to them. The situation is therefore rather more complex than the hon. Member for Blyth Valley suggests.

Julia Goldsworthy: I am grateful to my hon. Friend for that contribution.
	Another question is whether the Government should be looking at the advice given by the credit rating companies and by those third-party organisations that advise the councils. My colleague Lord Oakeshott of Seagrove Bay has raised some issues of considerable concern. He pointed out that
	"two advisory firms, Sector Treasury Services and Butlers...appear to have given councils advice and an A-rating for Landsbanki and Heritable virtually up to the moment that that firm bit the dust".—[ Official Report, House of Lords, 13 October 2008; Vol. 704, c. 557.]
	He has raised the concern that there was perhaps some kind of kickback or remuneration from the banks, in relation to the payment that the councils were making. This issue needs to be urgently explored, and the Government should be taking an interest in it, rather than trying to stand back from it.

John Mann: I do hope that the hon. Lady will do her homework a bit better. The credit ratings are available, and anyone can see that the ratings for two of the three Icelandic banks in question did not change until 22 May. Until that point, they had not changed, but on that day, they did. That information was made available to local authorities. The hon. Lady needs to distinguish precisely between local authorities that were, on the face of it, investing rationally up to 22 May—many of which were doing so over a 12-month period and were caught up in all this as a result—and certain others. She should also perhaps look in more detail into why a handful of local authorities chose, after 22 May, to invest new moneys when the special report on Iceland, produced that day, made pretty clear reading. Having read the report, I certainly would not have wanted to put my money into an Icelandic bank, and it seems strange that a handful of local authorities did so after that date. The hon. Lady needs to distinguish between the various local authorities in that regard.

Julia Goldsworthy: There is a difference between local authorities that have been caught up in the problems because of long-term investments and those that made their decisions more recently. The timing has not been uniform across the ratings agencies, and the drafting of Treasury reports also seems to have triggered different responses. For long-term investments, ratings from AAA all the way down to BBB are considered to indicate a low to moderate risk. Some of the Treasury guidance to councils suggested that, as long as their investments fell within that band, they would be okay. Other councils, however, were prepared to invest only in the top rating bracket. Differences in councils' strategies resulted in some councils responding to the rating changes when others were looking further ahead.
	There are also examples of councils having genuinely been given inaccurate advice. For example, the counterparty list that Cambridge used listed Heritable as a UK bank. On the basis of Cambridge's investment strategy, Heritable counted as a UK bank and a safe investment. In reality, however, it was not. These issues need to be investigated, and I would like the Government to take an interest in the wider effects, rather than saying that they do not want to get involved in the advice that councils seek and receive. Perhaps the Minister will also be able to tell me whether the independent advisers are regulated by the Financial Services Authority. It is not clear to me at the moment whether they would be, but that adds the matter of regulation to the advice that is supposed to have been given.
	I would appreciate any further information from the Government on whether they have a full picture of who is affected. We know from what the Minister said this afternoon that the LGA has a pretty clear picture of all the councils involved: it is not yet finalised, but there are no blanks in the number of councils affected. What about other public organisations, however? There are concerns that registered social landlords and regional development agencies might be affected. When will the Minister be able to tell us categorically whether they are?
	Many people are concerned at the prospect of the problem migrating to other public bodies. What was particularly disturbing for many was the fact that all this came out of the blue. Many of my constituents said, "I did not know that my council had that kind of money to put in a bank in the first place". People do not want any further nasty surprises.

Daniel Rogerson: My hon. Friend is making some excellent points about the recent crisis. I, too, have been contacted by a number of constituents concerned about bank problems. There is a lack of understanding of local government in the wider community, but we expect the White Paper to help people to understand how local government functions, so that when something like this occurs it is not such a big surprise to them. The extent to which certain councils are exposed might still be a surprise to them, but they should not be surprised at the way in which local government functions. People need to be far more involved in their councils' decisions.

Julia Goldsworthy: My hon. Friend is absolutely right. The situation is not helped by the fact that council tax funds such a small proportion of local services. Many people still think that business rates fund local services, whereas the council simply collects them on behalf of the Government. Given that councils make payments only twice a month and that much is invested, has the Minister made any assessment of how much of the money caught up in Icelandic banks is earmarked for the Government? It was their income that the councils were investing before they passed it on to the Treasury. I wonder whether the Government have any sense of the extent to which they will be affected.
	I have made it clear that the Government need to review and update their guidance. Treasury strategies need to be updated in the context of vastly changing economic circumstances. It seems ridiculous that, in the light of recent changes and the impact of the crisis, the Government do not believe that they should do the same as councils. I appreciate the Minister saying that the Government have allowed councils to capitalise losses in the past, but I think that a statement saying that councils will be able to do so in future would provide some certainty so that people, councils and council tax payers would know that if, at the end of the day, the councils cannot recover all the money, it will not impact on council tax next year. That sort of backstop should be used only as a last resort, but it should be there.
	Local authorities also need to provide clarity. I hope that all the affected councils will conduct a review into their circumstances. Depending on the timing and the extent of their exposure, it might need to be an independent review, but it could be an internal one. I know that some councils have already initiated such a process. Kent county council, for example, has initiated a review from PricewaterhouseCoopers and I know that North-East Lincolnshire is planning an internal review. I would encourage all other councils to do the same.
	Flagging up some of these structural issues might help, and best practice can be shared. I have spoken to councils that pulled out. The successful ones are not those that simply ratify their Treasury strategy at the time of the full Budget; they may have twice-yearly full council meetings to discuss their strategy; some have member panels to review the position regularly; representatives and third-party advisers may look at what is going to happen in the future. As I say, best practice can be spread and I hope that the LGA will focus on it because it is really important to restoring confidence.
	I shall move on to some broader issues. I know that many Members still wish to speak, so I will not dwell on them too long, as I know that the hon. Member for Bromley and Chislehurst has already touched on them.
	The current problem highlights a much wider lack of transparency and a huge complexity in the workings of local government finance. Councillors have told me, "We assumed that those in the treasurer's department knew what was going on, so why did we need to do anything?" Similarly, the public do not understand how the system works. They ask "How come the council has all this money?"

Susan Kramer: Is there not a deeper problem? When a millionaire with a millionaire's lifestyle is living in a high-grant authority area and paying very low council tax while a postman is living in a low-grant area and paying very high council tax, it is clear that deep unfairness is built into the system and that it requires a major overhaul.

Julia Goldsworthy: My hon. Friend is right: unfairness is built into the system. It is also very difficult for people to understand what they are getting in return for the money they pay at local level. Council tax finances only a small proportion of local government spending in most authorities, although I know that it is the other way around for my hon. Friend. The rest is determined by a complex funding formula that has floors and ceilings and enables gives councils to claw back money. The system is confusing enough for councillors, let alone the taxpayer.
	Business rates should be raised and spent locally. That would be a very good way of increasing the revenue that councils can raise and spend. Every year people see their council tax rise above the rate of inflation, while also hearing about pressures on their key services. Furthermore, through the complexities involving Iceland people are learning that their council is having to invest money to secure additional revenue. There are so many complexities before we even start thinking about all the other public services that are funded locally with no democratic accountability and with huge sums being spent.
	Handing over many of those resources to local authorities would simplify the process and make it much more transparent for the users of local services. How can we expect people to have confidence in the system if they do not understand how it works? The problem with the financial system at the moment is that it is so complicated that people have no confidence about the future.
	We have seen some action from the Government. The Minister referred to the removal of ring-fencing in some instances, but there is still far too much ring-fencing. Yesterday I attended the launch of the Sustainable Communities Act 2007. The Act has the potential to make a huge difference to the way in which the allocation of resources is decided and to return power to local communities, but real concerns remain about how the Government will deliver that, and in particular about how effective local spending reports will be in casting a spotlight on where public money goes at local level.
	The empowerment White Paper is all motherhood and apple pie—there is very little in it with which to disagree—but unfortunately it does not change the relationship whereby so many resources trickle down from central Government. That fundamental issue must be addressed, along with the need for councils to understand that they are expected to push more resources down to people. It is a two-way process, but the empowerment White Paper is only about what councils should be doing; it does not say what the Government should be doing.
	There has been no action on council tax. As my hon. Friend the Member for Richmond Park (Susan Kramer) said, the present system is fundamentally unfair. Council tax is not a buoyant form of taxation. It does not keep pace with inflation, which is the reason for the above-inflation increases that we have seen. It is also currently based on property valuations that are 20 years out of date. Those who seek to defend council tax as the most appropriate system cannot continue to do so unless they acknowledge that there must be property revaluations at some point. That is the fundamental flaw in the Conservatives' arguments. They will have to say something about revaluation, or their policies will not be credible.
	There are other authorities in which there is no democratic accountability. Police authorities, for instance, are not directly accountable. Why are the Government not doing more to drive the agenda forward so that people can see who is accountable for spending decisions in those authorities? More resources should be transferred to local authorities from quangos such as the regional development agencies. There should be a much more transparent funding formula, there should be a change in the balance between what is raised and what is spent locally, and council tax should be replaced by a fairer system, buoyant and based on ability. The Minister hangs his head. He has heard all the arguments before.
	Council tax is becoming increasingly unacceptable. Thousands of pensioners in my constituency are struggling to pay their council tax. Some of them might even be entitled to council tax benefit but they have not applied for it and do not receive it. Many people are angry because they see no link with the services they get. There needs to be a fundamental review not only of how resources are allocated, but of how funds are raised; simply tinkering around the edges will not solve the fundamental problem.
	Finally, I seek a few thoughts from the Minister. We have been busy dealing with the current crisis, and there has been a huge change in the stability of financial institutions throughout the world. I do not think anybody expected local authorities to be a victim of some of these changes, but I wonder how much time the Department are dedicating to looking ahead to identify other possible impacts. The Minister spoke about fuel costs and a potential increase in borrowing costs. Clearly, housing will be a major issue in future; if the predictions about the numbers of people who are struggling to pay their mortgage or who are likely to be evicted from their property are proved right, there could be huge increases in housing pressures.
	What other areas is the Minister looking at as potentially presenting future problems for local government as a result of the credit crunch? I know that some councils are already reporting concerns about large-scale capital projects, often where they are dependent on the sale of property to part-fund them. They are also concerned about private finance initiative schemes, particularly those under negotiation at present, because increased borrowing costs are suddenly making them a lot more expensive.
	I am also concerned about a lot of the excellent joint working undertaken across local authorities. Local health and education services and local authorities have often worked well together to provide services. My concern is that this is always seen as the added bonus, and that as soon as the funding settlement gets tight such joint working is often the first thing to go—I am seeing that on the ground in my constituency.
	It would be helpful to hear any comments the Minister might have on what is being done to try to pre-empt these potential problems so that we can see them coming down the line rather than having to respond to them after the event, because one thing is certain: while our local communities are very important, we are operating in a changed world now, and we need reassurance that everything is being done to understand what those changes mean to local communities.

Hugo Swire: It is regrettable that this debate is so thinly attended, not only because the problems with the Icelandic banks will have a difficult knock-on effect on our local authorities, but because the general economic situation is creating tremendous uncertainty. It is unfortunate that the Minister has just left the Chamber because I am about to be polite to him: I agree with much of what he said—albeit with some caveats that I shall outline in my speech—not least the fact that for a lot of people local government is the only kind of government they encounter.
	My hon. Friend the Member for Bromley and Chislehurst (Robert Neill) was candid enough to admit that successive Governments of all political persuasions have tinkered with local government, usually to its cost. However, although sins were committed in the past, that is no excuse to visit the sins of our forefathers on our successors, and that is why I shall devote my comments this evening to why the Government must re-examine their drive towards forcing unitaries on various parts of the country, not least in Devon in my part of the world.
	In Devon, unitary status was originally the idea of Exeter city council, which wished to achieve it based on its existing city boundaries. That proposal was given huge endorsement at the time by the Minister for the South West, who is the Member for Exeter, but he has gone strangely silent now that the proposal is no longer an option. Probably, his thinking was that he could create a citadel city from which to defend himself against the creeping Tory votes that, I suspect, will cause him some trouble at the forthcoming general election.
	The issue of local government reorganisation is the elephant in the room this afternoon. It has been touched on only briefly, perhaps because of the presence of the Minister for Local Government. I wish that he were still in his place, because I think that having been at the Treasury, when he wears his Treasury hat—or hairshirt—he views a move towards unitary status and its implied costs with a wry sense of déjà vu at best. I do not believe that he is a roving ambassador for unitary status, and in that I submit that he is entirely right.
	The situation in which we find ourselves is that the boundary committee will report just after Christmas, I believe, to the Secretary of State and will come up with one of two solutions. The favoured solution is a unitary Devon without Plymouth and Torbay, both of which have already been accorded unitary status. An alternative hybrid scheme, which seemed to me to come out of nowhere and make no sense at all, is a combined Exeter and Exmouth unitary and the rest of Devon in another unitary. I do not know where these people get their ideas from, but it is certainly not from anyone to whom I have spoken in the county of Devon.
	I believe that the committee can recommend to the Secretary of State that there is no better alternative than the status quo. Everyone's suspicion is that it will not do that, and that it will recommend some kind of unitary status—I suspect for the whole of Devon. At that point, the Secretary of State will be able to listen to those of us who represent that part of the world and make her judgment. I shall explain why, in the changed circumstances in which we find ourselves, she should make the judgment that the status quo should be preserved, with enhanced working of the two-tier system.
	It is worth mentioning briefly the five criteria for a review of local government. The first is that it must attract a broad cross-section of support, which the proposals in my county certainly did not. The original proposal for unitary status came not from a groundswell of opinion and public support but, as I have said, from Exeter city council. The bid was flawed, and its finances were called into question. It was thought that Exeter would not be able to repay the costs of the change within the statutory five years, and we are all having to suffer this period of uncertainty as a direct result. The Minister will know that there have been an enormous number of representations from all kinds of stakeholders— much as I loathe that word, there is perhaps no better word in this context—including district councils and Members of Parliament, who it seems to me are often overlooked in such matters, to say nothing of parish councillors.
	The second criterion for a review of local government is that it should provide for
	"strong, effective and accountable strategic leadership".
	I believe that the current arrangements provide for just those things. I make no partisan point, because Devon county council is temporarily under the stewardship of the Liberal Democrats. It received a three-star rating from the Audit Commission in its 2007 comprehensive performance assessment, and the commission reported that the council was working with partners and improving the economy and the environment. I have my disagreements with Devon county council, as does my district council, but on the whole it is working well. The system whereby some of my district councillors are also county councillors is good, and it encourages co-operation. It is not ideal, but then show me a system that is better and I will support it. Certainly moving towards unitary status is not better.
	In proposing the single Devon unitary option, the boundary committee has flown in the face of submissions from a number of experienced local councils, including my own, which contends that a unitary council would not be as efficient and would be too remote for a dispersed urban and rural community. I cannot conceive of how a unitary would represent my more remote communities, including some of my more remote urban communities, if that makes sense, in the same way as the present council.
	The third criterion for a review is that it must deliver
	"the empowerment of citizens and communities, so that all communities have power and resources to influence the decisions that affect them in their localities."
	A county-wide unitary authority that had a population of approximately 704,000 and covered an area of 1.6 million acres would be one of the largest authorities, geographically, in England, so a council that is both distant and remote from the people whom it is meant to serve would be created. All the proposals that I have examined for Devon, Norfolk and Suffolk are fundamentally flawed; in each case, power is being taken away from local people. The real effect of such vast areas of unitary administration would be to deprive towns of their individual and distinctive voices in representative local government.
	One of the proposals in moving to some form of unitary status is the setting up of community boards, but I simply do not understand what they will do. They will be locally based committees of the unitary council; their meetings would be where local concerns are discussed, community priorities are agreed and decisions are taken about what the unitary council's local budget should be spent on. However, democratically elected parish councils already do an extremely good job locally. In addition, the Devon Association of Parish Councils has regular meetings, hosted, in rotation, by all the towns and parishes in the area. The meetings are attended by: county, district and parish councillors; the police; the fire brigade; health officers; and representatives of the voluntary sector. The meetings achieve nearly all the objectives of the proposed community boards and, thus, another forum is simply unnecessary.
	The fourth criterion is to
	"provide value-for-money services—services should be provided effectively, efficiently and in an integrated and coherent way, ultimately driving up customer satisfaction".
	That seems to be the kernel of the argument. I am not sure whether the affordability and value for money criteria can be met in the current circumstances. Debt has increased, particularly that of the Plymouth, South Hams and Exeter authorities—I believe that Exeter city council has £20 million in Icesave alone. Lessons should be learned from the places where these unitary changes have taken place, not least Cornwall and County Durham. Everyone, even the Liberal Democrats, would admit that Cornwall's authority is not working properly, and County Durham's went completely over budget, as we have heard. My hon. Friend the Member for Bromley and Chislehurst, who spoke from the Front Bench, alluded to Professor Chisholm and Professor Leach's book "Botched Business", which articulates in an almost frightening way what has gone on with these changes.
	Another thing that no one has touched on is staff morale. We have paid lip service to staff by saying what a great job they do in local government. I would argue that some of them do a great job in local government. On the whole, people working for local authorities do the job that they are set to do. If they do not do so, they should not be doing the job. There is an enormous degree of uncertainty among employees. I am not talking about the councillors, who will move on to whatever council organisation is in place—if they are lucky enough to get selected. That is part and parcel of being a democratic politician. The existing structures contain people who have devoted their careers to working for the organisations, and feel closely associated with them. Their morale is very low, and they will be delivering their services in a difficult time. So, the sooner the Government can scotch this approach, the better.
	The changes should be affordable. I alluded to why the Exeter city council bid for unitary status was turned down; it was not affordable or workable. I do not believe that any of these changes would be workable. East Devon district council, my local body, is debt free, whereas Devon county council is more than £500 million in debt. Its debt has risen steeply, from £365 million in 2003 to £614 million now. That is an increase of about £250 million in five years. When the Minister talked about the effects of a credit crunch, he was perhaps underestimating the effect that the economic downturn will have on the delivery of local services.
	One needs only to look at the different sections of the front page of  The Times today, which state:
	"Nearly 10,000 jobs are to be lost and up to 100 courts could close as budget cuts hit the public sector."
	Mark Serwotka, the general secretary of the Public and Commercial Services Union, articulated the union's fears when he said:
	"Banking bailouts should not be at the expense of public services."
	The article also states:
	"With most experts forecasting that unemployment will exceed government estimates, the bill for welfare payments is almost certain to rise further... £1 billion of policy initiatives are in jeopardy".
	It also states that cuts in jobs in the prison, probation and court services,
	"along with a freeze on new recruits or the use of agency staff, could lead to the closure of up to 100 courts."
	That is just the beginning. To use an Icelandic analogy, it is the tip of the iceberg. Things will be very serious for local authorities in the months ahead. It is more important than ever that they should deliver first-class services in an affordable and efficient manner while they are under that great strain.
	Others have spoken in far greater detail than I shall about the emergency intervention that the Government will make with the LGA, about the £300 million of English and Welsh councils' assets that it is hoped will be recovered from the two Icelandic banks and about the 116 councils and other organisations that are affected by that problem.
	In this debate, we are talking about what local government is meant to deliver in these difficult times. In my local council area, there are concerns about the move by Government to help first-time home buyers, which will take millions of pounds out of the regional budget for business investment according to the South West of England Regional Development Agency. Ministers have decided that the £300 million HomeBuy Direct scheme to support first-time home buyers should be funded through a partial reallocation of existing RDA budgets. That will mean that £20 million or £30 million will effectively be taken out of the RDAs' budgets for their current projects. That reallocation will largely affect the RDA expenditure in 2010-11 as things stand.
	The leader of my district council, Sara Randall Johnson, has asked the Minister for the South West and the RDA to ensure that that money is spent in the south-west. It is important, if money is to be taken out of the south-west's RDA, to ensure that that money is spent in the south-west region. We have yet to receive an answer, so I would be grateful if the Minister could respond in due course.
	East Devon district council, incidentally, is also asking to use the £5.4 million that it has in housing revenue subsidy, which is paid back to Whitehall, to fund new housing initiatives in east Devon. Other local councils might take note of that. It will be enormously important if the council can get that money back to fund housing because we already have about 4,500 people on the housing waiting list in east Devon. That figure grew during the last financial downturn. Inevitably, people with small businesses borrow against their properties and when the business closes the mortgage becomes unaffordable. That means that they hand their key back and turn up at the housing authority asking to be housed. We will see that happen over the coming months. The Government should consider seriously the bid made by East Devon council, as a locally and democratically accountable organisation, to be given back that £5.4 million to spend on the ground, where the council is best able to identify the need.
	The Secretary of State was asked yesterday, I think, about the accountability of regional Ministers. It seems to me that regional Ministers are phantom Ministers. In my case, the Minister for the South West, the hon. Member for Exeter (Mr. Bradshaw), has a pretty full-time job, I should imagine, at the Department of Health. There is no way in which one can hold a regional Minister to account in his capacity as regional Minister. He is not accountable to Parliament and I do not believe that he has an additional secretariat provided by Parliament to do his job. If he is a spokesman for the south-west, why do we not hear him speaking up for the south-west a little more than he does? I am not singling out the Minister for the South West—I would make the same comment about every regional Minister.
	We know that there is an internal Government wrangle between those who want to set up regional committees to hold the regional Ministers to account and those who resist the idea of such committees. We do not know how much they will cost or how they will be staffed. Would employing professional staff mean that Government grew even bigger?
	The present situation is hopeless. The Prime Minister is committed to setting up the unelected and unaccountable regional assemblies that are the brainwave—if that is not an oxymoron—of the right hon. Member for Kingston upon Hull, East (Mr. Prescott). We would be glad to see the back of those, but getting rid of them would mean that planning and other powers were transferred to the RDAs, which are far from satisfactory in other ways.
	We need to look at how local services are delivered. There was an extremely good debate on 7 October in Westminster Hall on regional spatial strategy in the south-west. More than 20 Members of Parliament attended, but none had any clear idea about who would be responsible for the delivery of local housing and budgets after the regional assemblies were abolished. The Minister and the Government need to look urgently at how local democracy is delivered.
	I shall end by saying that this is not the time to look at changing local government in my county of Devon. To paraphrase what the Minister for Local Government said at the start of the debate, local government should do what is written on the tin. In Devon, it is working: it could do better, but the two-tier enhanced system is by the far the best and most affordable. In these times of economic uncertainty, affordability must become the key criterion.

John Mann: There seems to be a consensus that Government at all levels will need to consider some belt tightening, given the rocky state of the world economy, and we could contribute to that by looking at the number of politicians that we have. There are far too many in Britain today: there are not too many in the Chamber at the moment, although the total of 16 who are here is akin to the number who would turn out for a debate in local government in some areas. However, reducing the presently vast numbers of MPs to 400 would be a good first step in cutting our cloth to fit the times, and reducing the membership of the House of Lords from more than 700 to a maximum of 100—I could be persuaded that it should be zero—would be a good second step.
	Local government is the third area where there are too many politicians, and we all know that all political parties in many parts of the country struggle to find sufficient people—not just people of the right calibre, but sufficient people full stop—to stand for local government elections. As well as having too many national politicians, we also have too many local ones, and there may well be a consensus in society that politicians should be seen to cut their cloth appropriately.
	One problem that is exacerbated in local government is that many of the politicians at each level are employed. The fact that increasing numbers of them are paid for the position that they hold is a change of culture, and it is not necessarily a change for the better. One reason why changes have progressed more slowly than they should have in some parts of the country is that the turkeys have not voted for Christmas—that is, the people involved in local government have not opted for irrational amalgamations in size or structure.
	There are two arguments for having unitary authorities in areas such as mine. The first is that neighbouring unitary authorities in south Yorkshire can charge an average of £200 per household more for a band C property, whereas we have to pay for a two-tier structure. Where does the money go? The chaos of the floods showed us that; we saw officers from the district and the county councils meeting to discuss who had the responsibility for sorting out the problems arising from the flooding. It was a classic example of how an irrational local government structure leads to the involvement of too many people, and I hope that the Government will continue to pursue the policy of establishing unitary authorities. The unitary structure is the rational one, and it would be very welcome in areas such as mine. Indeed, I would go further: if councillors are not prepared to move forward on that issue, we should make it much easier for the local electorate to determine whether they wish to have a unitary authority, whether the councillors like it or not. In some parts of the country, that would be welcome.
	The term "democratic deficit" has been mentioned; that is an issue that does not get enough of an airing in the Chamber. There is a democratic deficit, but the problem goes much deeper than whether central Government are taking powers from local government. There is a different level of democratic deficit. Let me illustrate the point with a couple of examples.
	The village of Misson in my constituency has got the country's only mushroom composting operation. That agricultural operation repeatedly creates a rather pungent odour. The legislation to deal with that is national legislation, but the authority that has to police the legislation is a small district council that is loth ever to spend any money on taking anybody to court, be it to impose an antisocial behaviour order or to deal with companies that pollute the air—illegally, in most people's estimation. It is clear that when the parish council and all local people wish action to be taken, they should be able to get national Government to override the powers that they gave to local government and take power at the behest of the parish council, which represents the views of the local community. That would be democracy in practice. For many years, there has been circular argument about how one gets the district council, which has no specialism in the subject—and why should it?—to police and monitor a specific, bespoke operation.
	Let me give a second example: the aggregates levy. In Nottinghamshire, that levy—taken from and paid for, of course, by those quarrying aggregates—goes, via central Government, back to local government and into a central pot. The money is not earmarked for areas affected by aggregate extraction or transportation, but is in a central pot. That is clearly nonsense. Again, the local community and local parish councils in Misson and Scrooby, in transport areas such as Harworth, and in Sturton le Steeple should be able directly to request an element of the aggregates levy, rather than it being circulated back into a central pot for one tier of local government to spend as it wishes.
	I give a third example: neighbourhood renewal money. I represent two neighbourhood renewal areas, Warsop and Manton. The money goes to a neighbourhood renewal team. In one case, there is a parish council, and in the other there is not. The funding is managed by the district council on the basis that the money goes to local people. Perhaps that money ought to go through a parish council. I would be interested to know whether the Conservative party even intends to maintain the neighbourhood renewal money; perhaps the hon. Member for Wycombe (Mr. Goodman) could give us an answer in his winding-up speech.
	On the local authority business growth initiative, Bassetlaw district council has £1.5 million from the Government for local business growth, but half that money—£800,000—has been earmarked in its budget for job evaluation. The answer that I got to my written question on the subject was, "It's up to local government to decide how the money is spent." Why is money to promote local business growth being spent on job evaluation? Of course job evaluation needs to be paid for, but not from money that is critically needed for business growth. At this of all moments, it is absurd for local councils to make secret decisions to squirrel away business growth money. It is precisely now that we need businesses to grow, so that we can ensure that jobs are available for local people.
	The Travellers policy in my locality is a classic case. All the local authorities in Nottinghamshire came together to decide on their Travellers need assessment. There was to be one assessment and one need determined for all Nottinghamshire. Bassetlaw, in its ultimate wisdom, went it alone, and went first. Surprise, surprise, it suggested that it needed 43 Traveller emplacements. There is currently only one Gypsy living in a caravan in the district, but based on a perceived Gypsy/Traveller requirement, it seems that 43 places are needed. That was put in without any consultation with anybody. I asked the Minister to intervene, because local people were not consulted—the matter did not even go to a meeting of elected councillors; the decision was made arbitrarily by one cabinet member—but central Government have no powers to intervene.
	Who should receive applications, such as the Showman application to build a site three times the size of Oldcotes village, but Oldcotes parish council? Out of the blue, it received that planning application, because Bassetlaw arbitrarily assigned it that way. That is not local democracy at work.
	The ability of local parish councils and communities to approach central Government directly and have their views considered needs to be greatly strengthened. In planning especially, we need proper powers for local parishes, especially when they have gone through the whole rigmarole of determining their own local development plan and having it agreed as part of the local plan. They should have a bigger statutory role in such matters.
	My final, and best, example is the Elkesley bridge. The villagers of Elkesley have needed a bridge over the A1, which has left their village almost inaccessible to the outside world, for 30 years. The decision has to be made by central Government, but the district and county councils do not make that bridge a priority in the regional transport plan. It is left to me and the local parish council to persuade central Government that they should fund that bridge. If we took out those two tiers of local government and allowed the parish council to access central Government directly for a decision, it would enhance local democracy.
	My final point concerns the Icelandic situation. The Fitch report for 22 May, given out to local authorities by Butlers, is straightforward. It unequivocally gives the Icelandic banks a negative rating for the first time. We need a proper investigation—at a later stage, as it is not a priority now—to discover why the handful of councils that took decisions after that date did so. Why did they not read the ratings from Fitch? If they did read them, why did they ignore them? Such speculation with council taxpayers' money is a step too far for any authority.

Michael Penning: It is a convention to be courteous to the previous speaker, but I would be misleading the House if I were to be courteous to the hon. Member for Bassetlaw (John Mann). Many of the issues that he has just waffled on about were debated hours ago. If he had been here for the opening speeches or for any of the debate, he would have heard that and not wasted the House's time.
	I want to talk about an issue that is very important to my constituents—that is why I am so passionate about it—and that is the Buncefield situation. The incident occurred nearly three years ago on 5 December 2005. Dacorum borough council is not the largest—or the smallest—local authority in the country, but it did fantastically well with that incident and subsequent events. However, many of the issues it has to deal with every day are too big and too complicated. Some are also delicate national issues, but that small local authority still has to deal with them every day.
	One issue, which is plain common sense to anyone who understands planning, is that the existing safety planning—the control of major accident hazards regulations—for the depot, which was blown to smithereens by three explosions and the subsequent fire, still exists and can be used by the oil companies, should they wish to rebuild the depot. It is ludicrous in the 21st century that the legal safety regime allows the depot, which was obviously dangerous—the inquiry is still going on three years later—to be rebuilt.
	My local authority, like all local authorities, cares passionately about the safety of its residents. I am sure that all hon. Members care about that as well. It would love to say, "Let's suspend the legal planning regulations for that depot at least until the end of the inquiry." The inquiry is still going on, and many of us would like to see a subsequent public inquiry. However, the local authority is fearful of doing that, because litigation would be brought by the large oil companies almost immediately to attack it in the courts on the basis that it does not have the legal grounds to do so. That is where central Government—I have met the Minister for Local Government, who knows my views, and I am sorry that he is not in his place to hear this again—should come in and help local authorities. I am all for local authorities doing as much as they can and for devolving power to them, but when the issues become too big, too complicated and too dangerous, central Government have to help.
	The regional authority has provided a degree of help. Frankly, I do not want help from the regional authority; I want central Government to say what is right and what is wrong for the safety of my constituents. The Government cannot continue to say that the powers have been devolved and that it is down to the borough council to get legal advice and to challenge three of the biggest oil companies in the world on the future safety of my constituents.
	I am pleased that the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), who is responsible for housing, is on the Front Bench, and I welcome him to his new role—we have exchanged banter on many subjects over the years. Believe it or not, there is a proposal to build 12,000 houses around the Buncefield site. Everybody knows that the safety zone around the site—it is known as the consultation zone—must be expanded, yet English Partnerships and the Crown Estate, which own the land around the Buncefield site between the M1 and the boundary of Dacorum borough council, propose to build housing on the site.
	As it happens, if there is going to be housing in and around my constituency, I would prefer to protect the green belt, which has been earmarked for development since the new town was built, so I would rather that the housing went on the land around the Buncefield site. In that case, we would need a lot of infrastructure, and there would be a lot of problems because the land crosses borough and district boundaries, but if the Government are going to force 12,000 houses on us, the houses should be put there. However, the housing should not be put there if Buncefield is allowed to be rebuilt.
	The greatest concern for my constituents is that Buncefield will be rebuilt without learning from the mistakes of the past. There are pressures on the Government and the oil companies to rebuild Buncefield, because the aviation fuel is needed for Heathrow. The simple question that my constituents put to me is why is Buncefield needed for Heathrow, when Heathrow has operated successfully for the past three years without Buncefield? Other methods have been used, such as bringing in fuel from other depots.
	Huge pressure is being exerted on a small borough authority that wants to do the best for its community. I am also under pressure, because I have attended meetings with large oil companies at which they said that the Buncefield site was a piece of national infrastructure that they must be allowed to rebuild. When I meet Ministers, speak to Departments and secure Adjournment debates, the responsibility is always pushed down to the local authority, which does not have the expertise, let alone the funding back-up, to take on the oil companies.
	I have discussed Buncefield on many occasions in this House, but I will touch on a related point—only briefly, however, as I want my colleagues to have more time to speak than me. The point is the change in the rules on the business rate for an empty property. The Government have changed the rules so that if a business property is empty, 100 per cent. of the business rate is payable rather than 50 per cent. That may be right or that may be wrong—I do not want to get into the debate about whether it is right nationally—but it cannot be justified in and around the Maylands industrial debate, which is located at the side of Buncefield, where properties were blown to smithereens. Businesses were going to be charged 50 per cent. of the rate, which I still think is an abuse, but they will now be charged 100 per cent. of the business rate, while companies are still trying to decide whether it is safe for their employees to return to those buildings, if they were to decide to rebuild them.
	It is morally wrong to penalise an organisation and for jobs to be lost in a constituency simply because there has been an arbitrary change that does not allow a local authority—which, as everybody knows, has no control over business rates—to say, "Hold on a second. We need to protect jobs."
	I ask the Minister to speak to his colleagues to ascertain whether there is any way for businesses in my constituency which have been devastated by the explosion—through no fault of their own whatever—to go back to at least the 50 per cent. rate while we assess the problems caused by the Buncefield incident.

Brian Binley: Patience has its own reward, and I am delighted to take part in this debate. May I declare an interest? It is well known that I am still a county councillor, having served for almost 12 years. I will cease to be one come May, because my constituency and electoral division are not coterminous, but I shall leave with great regret. I join the many who have said tonight that local government has a massively important role.
	I want to take issue with the White Paper and its broad aims as stated by the Secretary of State for Communities and Local Government in July this year. She said that the broad aims were twofold:
	"to rehabilitate local political activity as a worthwhile activity"
	and to pass more power to the people, so that they feel that if they get involved, it will be worth their time and effort. She said that the key themes were about "power, influence and control" for local authorities and local people. I wish I could accept that with any real fervour, but the truth is that for many in my constituency, the very opposite of those words applies to the Government's actions with regard to local government.
	The poor Government funding formula under which local government in my area—especially my county council—has to labour year after year has massively reduced local power, undermined influence and detracted from good local government. The major reason is plainly the Government. The funding formula is a disaster for Northamptonshire. The ad hoc adjustments that the Government have made from time to time have proved a disaster for the county and they have meddled unfairly in the distribution of moneys that rightly should have come to Northamptonshire, but have gone to other areas of the UK, seemingly for political reasons. That makes my constituents angry; it is right that that should be said in this place. The shift of resources away from shire counties to other areas—Labour areas, dare I say—has been nothing short of disgraceful. My constituents are well aware of that, and I shall make sure that they continue to be so until the next election.
	Let me give some facts to support that assertion. In 2006-07, per head of population, taxpayers paid £2,313 for health and social services in Scotland; for the same services in England, the taxpayer paid £1,915. When we take free prescriptions into account, the gap widens. Nobody can tell me that that is fair in any circumstances; my constituents would certainly not believe that it was. Let me proceed: taxpayers spent £2,109 per head on patients in Wales—more than £194 more than the same per capita payment in England. When we add the fact that the divergence within England is sizeable, we recognise that the funding from national Government for local services in my county and constituency is among the poorest across the board. Again, I say that that is unfair.
	In July 2008, when the Institute for Public Policy Research looked into how the Barnett formula was put into effect, it found that Scotland was getting 11 to 18 per cent. too much money for the nation to be treated fairly and that England was getting 1 to 2 per cent. too little—an overall gap of 12 to 20 per cent. Nobody can tell me that that is not partly political. I have heard all the arguments about deprivation. Perhaps this is about the deprivation of future Labour candidates who might not win their seats, for there certainly has to be a better reason than deprivation for that great gap to have occurred.

Philip Hollobone: I congratulate my hon. Friend on his excellent speech. Is he aware that in the borough of Kettering, for every £4 that council tenants pay to the council, the council is forced to pay £1 to the Chancellor of the Exchequer, not for redistribution to poor housing areas in other parts of the county but to be used in general Government expenditure? Does he agree that that is a stealth tax on council tenants?

Brian Binley: I fear that it is. I am grateful to my hon. Friend for that interjection. I well know how strongly he feels about the subject, and it is worth repeating many times.
	We raised this matter with the then Minister for Local Government, who recognised that local funding for both revenue and capital can be "lumpy" in places. That is a gentle way of putting it; my constituents would put it in slightly harder terms. The formula does not take into account the proper population figures, as was recognised by the Minister some time ago when he told me that the Office for National Statistics had stated that there had been no growth in Northampton and the surrounding areas between 2001 and 2008. It might come as a surprise to him to learn that that figure was wrong. We have had 13,824 new houses built in that time, and I can assure him that they are not all empty—in fact, people love living in my part of the world and are queuing up to get there. Schooling is very good there, and that has added enormously to the population, but that is not recognised in the funding formula. I could go on about this, Mr. Deputy Speaker, but I know that you will be keen to end the debate at the time you have decided, and I do not want to be cut off in mid-flow.
	Another matter that my constituents feel strongly about is the setting up of a quango to make major planning decisions affecting my area, thereby taking those decisions away from local authorities. The quango is called West Northamptonshire development corporation and, by golly, my constituents feel angry about it. Its job is to oversee 100,000 new dwellings and a commensurate increase of 200,000 new people by 2021. That underlines how my constituency and those of my neighbours are growing in population terms. By that time, we will need six upper schools, 18 primary schools, 400 additional hospital beds and 26 doctors' surgeries, to say nothing of policing, leisure services, transportation, sewerage and water facilities—I could go on ad infinitum.
	The growth is to be massive, so who is to guarantee the money for that big list of infrastructure requirements? The Government say that they will not do so, but hope to raise it from various means such as section 106 agreements and roof tax. The plans are quite vague. I do not need to tell the Government that house building has dropped off the edge of a cliff, not only in my constituency but in many other areas of the country, and the chances of getting that money are almost non-existent.
	What we are going to see? Are we going to see more social housing? There is a need for it. Are we going to see council housing? I support council housing. I know, however, that we will not get the money via the means set out by the Government—from developers or from land taxes of whatever kind. That creates a sizeable concern for my constituents.
	Furthermore, not only is the quango in control of planning decisions, but it takes decisions in total defiance of the stated will of the local population. I shall give two examples. There is a new development in the Grange Park area of my constituency. Planning permission was submitted, and all three district councils involved objected. The Environment Agency, Anglia Water and the Highways Agency all objected—I could go on and on, but we know the end of the story. Planning permission was given in spite of the fact that there were no guarantees for the schools, roads and policing that will be needed once those houses are built to help and sustain those who move into them.
	All the councillors on the planning body advising the urban development corporation argued that an application for a wind turbine of 147 m on an industrial estate should be rejected. What has happened? The decision was deferred by the officers of the quango, who have every intention, I am told, of passing it on the next occasion. So much for local democracy. So much for encouraging people to take part in local government in a worthwhile and interesting fashion. Why should they when local issues are so deliberately disregarded, and when their role is so deliberately demeaned?
	Fine words butter no parsnips, as my grandmother would say. I know that you understand the saying, Mr. Deputy Speaker, but perhaps many young people would not nowadays. The actions of our local quango make the point that the Secretary of State is happy to issue fine words, but the Government's action tells us that they do not really mean very much. That is what my local constituents and other people in surrounding areas believe. So what should the Government do? Let me be bold—let them be bold, too—and see whether I can get a response from them. We should remove the planning function from the urban development corporation forthwith and restore it to the local authorities that were elected to carry out that function. The very fact that something does not suit a Government plan is one of the reasons why we have local government. It is one of the very reasons why we devolved power. That is what the Secretary of State says we need, but the Government's actions deny their words.
	Secondly, we should review the funding formula and simplify it to make it more robust. It should react to population increases in real time and ensure that the people I represent are treated fairly. They are not at the moment, and local government is suffering. When I was a finance portfolio holder, I had to cut £45 million and another £41 million in two consecutive budgets. Finally, we should scrap the Barnett formula and create a new one that more fairly distributes taxpayers' money between the various regions of the UK, taking into account the factors that it needs to, but not allowing for the sort of political manipulations we have seen. The Government should stop the spin, act upon their fine words and restore faith to the system. If they did, my constituents would be delighted, but I fear that the Government are not going to have the courage to act in that way.

Paul Goodman: Although my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) cheered us all up with his knockabout attack on the various follies and errors in Government policy, the debate has necessarily been rather sombre, given the background. It has also been thoughtful and constructive, and I want to respond to some of the main points.
	I am sorry that the Minister is not in his place—doubtless, he will scurry in shortly—because I wanted to congratulate him on his elevation to the Privy Council. In the light of that good news, I expected many Government Back Benchers to flock in to support him. However, at the start of the debate, only two were present, neither of whom—how can I put it politely and diplomatically?—is famous for supporting every dot and comma of Government policy. Nevertheless, the Minister did his usual excellent job, in his polite, thoughtful and constructive way—and we are grateful for his comments about the Icelandic banks—of defending the indefensible.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) presented the argument, as I expected, for local income tax. To put it mildly, we do not agree with her. We do not believe that, at this point in the economic cycle, with a downturn looming, we should impose more taxes on hard-working families. However, I am determined to agree with her about something, and I agreed with her intervention about IN35, one of the indicators that measures PVE—preventing violent extremism. She was right to point out that the Government should ensure that money does not go to extremists, but that local councils should have the maximum flexibility to use PVE money as they want.
	The hon. Member for Blyth Valley (Mr. Campbell), who has not returned, made a doughty defence of his local interest. The hon. Member for Bassetlaw (John Mann) asked me for a commitment on neighbourhood renewal money. I am sorry to disappoint him, but I am not in a position today to write on the Floor of the House our general election manifesto on every pot of money that the Government produce. I know that he will be disappointed, but I am afraid that he must live with that.
	My hon. Friend the Member for East Devon (Mr. Swire) made, as always, a polished and assured speech, and demolished the various follies of unitaries. He made a telling point about parish councils, which do a job that the Government seem to want to reinvent.
	My hon. Friend the Member for Hemel Hempstead (Mike Penning) reverted, as one might expect, to the Buncefield fire, a subject that he has raised many times. It proved again, were proof needed, that he is capable of phenomenal hard work on behalf of his constituents.
	My hon. Friend the Member for Northampton, South (Mr. Binley) brought all his council experience to bear—I am sorry to hear that he is finally to leave his local government post—on various aspects of Government policy with which he disagrees.
	I want to ask a few questions about community cohesion, especially about the way in which the Department perceives the role of local government in helping prevent violent extremism—an aspect of local authorities' work that we have not discussed so far. I will make three brief points about that.
	First, it is wrong to assume that violent extremism is the monopoly of any particular ethnic or religious group. It is worth noting that, in the past year, a neo Nazi from Yorkshire was sentenced for serious offences under terrorism legislation for designing violence to be committed specifically against Muslims.
	Secondly, we must recognise, however, that the main threat to public safety—to Muslims and non-Muslims alike—comes from those who would exercise violence in the name of Islam. I would like quickly to make the point that it is not often appreciated that Muslims face a particular difficulty, because the aim of al-Qaeda is to drive out mainstream Muslim leadership and replace it.
	Finally, many people talk about the causes of violent extremism and give different reasons for it—the failures of multiculturalism, foreign policy, discrimination, and so on. The point is that local government has to pick up those issues and deal with them. They are not just a matter for national Government. I appreciate that the Minister will not have time to answer all my points, so I would be grateful if he indicated that he will write to me about any that are outstanding.
	Government policy on preventing violent extremism has been through three main phases since 2007 and the horror of 7/7. The first was to work through the preventing extremism together programme, with which I know the Minister was involved, with partnership organisations at a national level. The second phase, begun after Tony Blair rushed out his famous—or notorious—12-point plan, saw the Department for Communities and Local Government in the driving seat and the start of the preventing violent extremism programme or PVE, the flagship DCLG scheme. The third and current phase sees the Home Office back in control, seeking a more targeted approach. We must all hope that the latest strategy works, and of course we entirely support its aim of preventing extremism and supporting moderation. However, it raises questions about the future of PVE and the role of local authorities.
	As I have told the House before, we must recognise that targeting taxpayers' money at one faith community is problematic. None the less, given the seriousness of the threat of violent extremism, we have supported PVE and continue to do so. Indeed, I pay tribute to some of the good work that I have seen up and down the country. However, we must recognise that considerable sums are being invested in PVE—some £45 million this year and the next two years, on top of the £7 million or so that was spent on it last year. It is vital to ensure that the money is effectively spent.
	The Department should therefore surely support an independent study of the scheme's effectiveness in achieving its indispensable aim of preventing violent extremism. If Ministers will not commission such a study, questions are increasingly bound to be asked about whether the scheme, which works through local authorities, is achieving its aims. We have to be sure that it is doing so. Will the Department commission an independent assessment of the effectiveness of PVE?
	In July, the Secretary of State announced that she planned to establish a new board of academic and theological advisers. I previously floated the idea of a privately financed institute of British Islam to achieve the same aim and we have some reservations about the danger of the state being seen to impose a preferred model on British Muslims. Will the Minister say whether members of the board have been appointed yet and, if so, who they are, whether they have met, whether they will publish any reports and what role local authorities will play in the process, if any?
	We are aware that the Mosques and Imams National Advisory Board published a draft constitution last year and obtained responses, and has since published a second draft constitution in the light of those responses. We would be grateful if the Minister said when MINAB will publish a fully fledged constitution and what plans there are, if any, for links between MINAB and local authorities.
	In closing, I make no apology for returning to the implications for community cohesion and local government of sharia courts in the UK, a matter on which the new Minister quite properly opined last weekend and which we discussed yesterday. As both I and the Minister intimated yesterday, my hon. and learned Friend the shadow Home Secretary has received a letter from the Home Secretary confirming that Muslim arbitration tribunals were established in Britain last year. We have no objection in principle to the use of arbitration vehicles, including such tribunals, to resolve private family and contractual disputes. However, those tribunals will clearly be run by sharia judges and are therefore likely be marketed to Muslims as state-licensed sharia courts. There are, in particular, important questions about whether Muslim women will always come before such tribunals voluntarily.
	I want to put it on record that we are deeply concerned about the paucity of information that we have received from the Home Office and about the implications, therefore, for community cohesion. This is a subject of great public interest, as the Archbishop of Canterbury, for one, will confirm.
	Ministers do not appear to have announced the establishment of these tribunals last year. They have not said how many there are, or who was consulted. They have not told us who the mediators or judges are, how many cases have been heard or what measures are in place to protect women. The House and the public are being told very little. I was grateful to the Minister for confirming yesterday that he will use his good offices to clear up these matters, by ensuring that we get answers in writing, but our message to Ministers this afternoon is that they should not take refuge in letters that conceal more than they reveal.
	I could close this debate in the manner in which my hon. Friend the Member for Bromley and Chislehurst quite properly opened it, by attacking all the flaws and follies of Government policy in relation to centralisation, the target culture, the planning quangocracy, the gimmicks—such as doughnuts for voting—to which my hon. Friends have referred, and people pressing buttons when councillors are not even in the chamber. Or I could refer to the absurdities of the Standards Board for England, about which so many councillors complain.
	However, given the questions that I have just raised, to which I am seeking answers from the Minister, I would like to end on a note on which I think the whole House can agree. The challenges of violent extremism are clearly serious. If we are to succeed in tackling it, much of that success will depend on the effectiveness of an unwritten social contract between British Muslims and non-Muslims. Non-Muslims, such as me, all the non-Muslim Members of Parliament and others, have to make Britain a warm place for mainstream Islam and acknowledge the contribution that Islam has made to the west in the past, is making now and will surely make in the future.
	The other side of that social contract is that Muslims themselves must continue—as the majority do—to seek to drive out support for terrorism and extremism. The success of that social contract will depend on what is effected not only at national Government level but at local government level, where local councils have responsibility. That is the forum in which many of these great issues will be decided. I look forward to hearing the Minister's reply.

Sadiq Khan: It is a pleasure for me, Mr. Speaker, to wind up a debate for the first time with you in the Chair, and that its subject should be local government. I was a councillor for 12 years, serving with great pride in the ward of Tooting in the London borough of Wandsworth. The hon. Member for Bromley and Chislehurst (Robert Neill), who opened the debate for the Conservatives, also has considerable experience in that regard.
	When the Minister for Local Government opened the debate, he spent almost an hour talking about local government, and he rightly went into huge detail about the consequences for local authorities of the problems in Icelandic banks. The fact that we have ended our debate with a discussion on the means of preventing extremism demonstrates the depth and breadth of the issues that local government covers, from the free doughnuts proposed by the hon. Member for Bromley and Chislehurst to the pungent smell of mushrooms in the constituency of my hon. Friend the Member for Bassetlaw (John Mann).
	I want to begin by paying tribute to the thousands of local authority employees; who do a tremendous amount of work, and who often dedicate their careers to public service through being council employees, and to the many others associated with local government. I also pay tribute to the thousands of councillors who do such a huge amount of work around the country. Many distinguished Members of Parliament are former councillors; some are about to be former councillors; and some might have become better parliamentarians had they had the experience that some of us have gained in council chambers.
	I have only a few minutes in which to touch on many of the points made in the debate. I enjoyed the passion with which the hon. Member for Bromley and Chislehurst talked about the Icelandic bank crisis. He is a West Ham fan, and one can appreciate why he has been quite troubled over the past few days. We were not sure where his passion came from, but we gave him the benefit of the doubt and decided that it was a passion for local government.
	The hon. Gentleman brought a smile to my face, as someone who served in the London borough of Wandsworth for 12 years. He will remember when, in 1991, the then Prime Minister decided to set a huge dampening grant for certain local authorities. Westminster and Wandsworth were the two beneficiaries that ended up with a zero council tax. When the hon. Gentleman referred in his speech to "screwing the system", I, of course, knew that he had recently re-read the John Major autobiography, so he knew why some local authorities got a huge whopping dampening grant and could set such low council taxes.
	I particularly enjoyed the hon. Gentleman's analysis of local government finance and the robust approach that he took to it, as well as the detail with which he explained the issues. I have to say, however, that although he spent a lot of time—almost 30 minutes—offering a critical analysis, I do not remember any beef in terms of what his party would do if, God forbid, it were to form the next Government. That silence spoke volumes.
	The hon. Gentleman spoke about the bonfire of regional bodies that have huge levers to do a huge amount of good and about the bonfire of the standards regime and accompanying regulations that ensure that councillors maintain minimum standards. He will be aware that, in the current climate, there is a debate to be had about the bonfire of regulations in the mid-80s, which some say led to today's problems. We await with interest the evolution of Conservative policy on local government.
	My hon. Friend the Member for Blyth Valley (Mr. Campbell) spent considerable time talking about his concerns about Northumberland. I know that my hon. Friend the Minister for Local Government has visited Northumberland and that he was making copious notes as my hon. Friend was speaking. I am sure that some of the points raised will be dealt with via correspondence.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) spoke about issues ranging from the White Paper and localised business rates to the unfairness of council tax, as she sees it, but the interventions on her demonstrated how unfair we think her proposals are as an alternative. The hon. Lady talked about police authorities and revaluation, but her main concern—and rightly so—was the Icelandic bank crisis and its impact on local authorities. She wanted us to provide more detail about what sort of authorities the 16 affected were—the 13 and the other three that my hon. Friend mentioned. I cannot go into any more detail than did my hon. Friend, except to say two things. First, a joint statement has been published by the Local Government Association and the Government, which the hon. Lady can obtain at the end of the debate. Secondly, the sort of local authorities affected are wide ranging: there is no one type, as they are different councils in different parts of the country and the circumstances are different in each case.
	The hon. Lady also criticised us—unfairly, I thought—for following events rather than acting in advance of them. She will be aware that we set up a rapid response team before we knew about the need to use it for local authorities and she will know that its representatives are now helping local authorities up and down the country. I also have to disagree with her analysis and agree with that of my hon. Friend the Member for Bassetlaw, who said that now is not the time for post-mortems or the blame game. That time will come, but our priority now must be to ensure that investments are safe, that jobs are secured and that local authorities are able to serve our constituents. It is not possible to have it both ways. On the one hand, we are criticised for trying to ensure some minimum standards and for trying to help local authorities through partnerships; on the other hand, we are criticised for not having given more stringent advice to councils on where they should invest their money. As I say, one cannot have it both ways: devolution means just that.
	I thought that the hon. Member for East Devon (Mr. Swire) made an excellent speech, and I say that in a non-patronising way. As a London councillor and London MP, I will not have experienced first hand some of the changes that he articulated. I know that he feels passionately about the subject and he made a clear case. Let me inform the House that the hon. Gentleman was correct that we are still waiting for the boundary committee's final advice to the Secretary of State at the end of 2008. Until we receive that advice, the Government have no role, so I am not going to comment further on the specifics that we heard this afternoon. I assure the House, however, that we will give proper consideration to the boundary committee's advice and that we will take note of all representations received in the allotted time before we take any decision.
	The hon. Gentleman also spoke about the accountability of regional Ministers. He criticised the setting up of regional Select Committees because he saw them as further increasing the size of government, but I am sure he will be aware that Select Committees play a huge role in providing scrutiny of Governments through checks and balances. The hon. Gentleman may not be aware that on 6 November, a debate is scheduled on that very topic and we will see if the recommendations on those Committees are supported.

Julia Goldsworthy: The Minister is absolutely right to say that Select Committees provide an important balance, but does he not think that if the Government were committed to demonstrating Select Committees' commitment to the devolution process, their chairmanships would reflect the political party balance of the region rather than which party is in government? It does not look as though we shall have anything other than a Labour chair of the south-west regional Select Committee.

Sadiq Khan: I am grateful to the hon. Lady for that helpful intervention. As she knows from her long experience in the House, those are matters for the House and its administration. I am aware from some of the minutes of the Modernisation Committee, which make pretty turgid reading, that there has been a huge amount of discussion about the issue. I gather that the meetings were more fun that the minutes.
	The hon. Member for East Devon also raised a matter relating to the Minister for the South West, my hon. Friend the Member for Exeter (Mr. Bradshaw). I will not go into it, for reasons that the hon. Gentleman will understand. The Minister for the South West is a friend, and an honourable friend.

Hugo Swire: The Minister is being very gracious in giving way. Let me clarify for the record that I referred to the hon. Member for Exeter in the context of the south-west, and pointed out that whatever I said about him could apply equally to other regional Ministers.

Sadiq Khan: I think the hon. Gentleman said that my hon. Friend was building a fortress around Exeter so that he could not be defeated. I paraphrase his remarks.
	My hon. Friend the Member for Bassetlaw, who is also a former councillor, made an excellent speech. He explained why the White Paper and the forthcoming Bill are so crucial, giving examples of the problems that exist in the current system. The hon. Member for Falmouth and Camborne expressed a similar view when she said that the status quo could be improved, and that we should do our best to improve it. My hon. Friend's analysis of the Icelandic crisis was cool and measured. He rightly said observed that at some stage we must re-evaluate the reasons for the position in which certain councils find themselves, and 22 May is clearly a date that we shall want to revisit.
	The hon. Member for Hemel Hempstead (Mike Penning) is a friend, and I always enjoy his contributions. He spends a great deal of time in the Chamber. I recall his raising the issue that he raised today back in the days when I was parliamentary private secretary to the Leader of the House. The Buncefield issue is important to him, and it should be important to the rest of us. As the Minister responsible for fire and rescue, I can assure him that we are considering all the issues relating to Buncefield in the light of the hazards report. I shall write to him, and if he is not satisfied with my response I shall be happy to meet him. I recognise that his passion arises from concerns expressed to him by his constituents, and his own frustration over what he considers to be inaction over the past two or three years.
	The hon. Gentleman mentioned empty property relief for business premises. As he will appreciate, on day 10 of my new job I am not entirely on top of the subject.

Andrew Robathan: Sort it out!

Sadiq Khan: The shadow Deputy Chief Whip is heckling me from a sedentary position. I ask him to give me time. We shall see what we can do.
	The hon. Member for Northampton, South (Mr. Binley) made an interesting speech. He spoke of the way in which the south is deprived by the rich, the way in which the relative-needs formula is unfair on his constituents, and the way in which his council is poorly funded. Some of us talk of a victim mentality. That applies not just to certain groups or communities, but to certain Members of Parliament and councils who speak of what they consider to be partial funding. But let me add, in fairness to the hon. Gentleman, that at least he was brave enough to come forward with a manifesto on local government for his party. He wants to abolish the national standards regime, to change the funding regime, and to abolish the Barnett formula. We shall see whether his suggestions are taken up by those on his Front Bench.
	The hon. Member for Wycombe (Mr. Goodman) spoke, characteristically, in a partial, unbalanced but witty fashion. I enjoyed his contribution, as I always do. I think that he and I agree on the ends—such as community cohesion—and also on some of the challenges that we face, although I suspect that we disagree to an extent on the means. He was wise to point out that issues of terrorism and extremism are not the purview of a single faith, religion or race, and I am pleased that he gave other similar examples. I shall write to him to answer some his questions, but if he considers a meeting with me to be desirable, I shall be happy to meet him—with or without officials—to discuss the issues that he raised. We need national unity during the times of crisis that he described, as well as at times of economic crisis.
	This has been a very important debate, and I congratulate all who were able to take part in it.
	 It being Seven o'clock, the motion lapsed, without Question put .

Michael Penning: On a point of order, Mr. Speaker. I do not want to pick on any particular Member, but many of us have sat in the Chamber for hours today during this very important and detailed debate with contributions from all sides, and it is enormously frustrating for those of us who have sat here for so long to find that a Member has walked in and sat on an empty Bench in another part of the Chamber and got preferential treatment because a Deputy Speaker had no choice but to call them, even though they have not participated in the debate and do not know what comments have been made from the Front or Back Benches. As I have said, this is not particularly an attack on the Member who did that, but it is hugely frustrating for Back Benchers who sit here for hours on end trying to speak in an important debate. What protection can you give us, Mr. Speaker?

Mr. Speaker: Order. This is difficult. I am the custodian of the rules, and anything that happened here tonight was within the rules. If it is any comfort to the hon. Gentleman, let me tell him that these things happened to me in 1979—that is going back a wee bit—when I was sitting on the Benches the hon. Gentleman is sitting on now. So these things have happened before. However, perhaps I can use this opportunity to put on the record that I expect Members—if possible, as I know there are other pressures on them—to be present for the opening speeches. They should at least hear the Government Front-Bench and official Opposition speeches; that is no disrespect to the Liberal Democrats, but that is the way it should be. If Members then have to leave the Chamber, perhaps they can come back and hear as much of the debate as possible. It has also come to my attention that sometimes official Opposition spokesmen and women and Government Ministers do not return for the wind-ups—that has not been the case in this debate, but it has happened in other debates—and I am putting on the record that I expect the same of Front-Bench Members as I expect of Back Benchers. With that little lesson over, I think we can move on to the Adjournment debate.

UNIVERSITY RESEARCH FUNDING

Motion made, and Question proposed, That this House do now adjourn.— [Mr. B lizzard .]

Chris Mullin: I welcome my hon. Friend the Minister to his new responsibilities. I realise that, having been in office for only a few days, he will have to stick closely to his script, but I hope that when he has had a chance to go away and reflect on the arguments advanced this evening, he will realise the sense in what I am saying and take whatever action is necessary.
	At the outset, let me acknowledge that the Government have greatly increased the funding available from the science and innovation budget for high-quality research; last year it amounted to £1.5 billion, and it is due to increase to £1.9 billion by 2010-11. That is to be welcomed. The problem is that most of it goes to a small number of institutions, with the majority receiving relatively little. While this is good news for the universities that receive the bulk of the research funding, it has a negative impact on the research infrastructure of universities such as the one I represent—Sunderland. It is also, I submit, not in the national interest.
	As the Minister will know, research funds are allocated by the inelegantly named HEFCE—the Higher Education Funding Council for England. It takes the form of an annual allocation payable over a five or six-year period, according to priorities laid down by the Government. The last allocation was in 2002, when it was decreed that only excellent research of international significance should qualify for public funding. The result was that just 19 universities received 76 per cent. of the available funding. Newcastle, for example, received £33 million, while Sunderland got just £1 million—and that despite the fact that Sunderland was rated in 2001, by  The Times, as the
	"best new university for research".
	Were the same criteria to be applied this time around, the result, inevitably, would be that the same universities would benefit and that the research capacity of other universities would continue to wither.
	I should make it clear that this is not a plea for a lowering of standards. Everyone accepts that it would make no sense to spread resources so widely that standards become diluted, and that only research of the highest standard and relevance should be funded. However, we do not accept that excellence is confined to such a relative handful of universities, or that little or no account should be taken of research of national significance.
	If current policy is continued, we shall inevitably see a widening gap between the haves and the have-nots. The best and brightest graduates and academics will drift away from the four fifths of universities at the lower end of the funding table, and the capacity of those universities to offer postgraduate courses for domestic or international students will continue to diminish. Some of our best brains will have no chance to fulfil their true potential, and our economy may suffer as a result.
	To give an example, Chris Bishop, the former professor of computing at Aston university, went on to head the Isaac Newton Institute for Mathematical Sciences at Cambridge and is now deputy director of Microsoft Research. I wonder whether he would have been able to make that leap had Aston been starved of research funds, as Sunderland has.
	It is a fact not generally recognised that British companies prefer to do business with a local university. The Lambert review of collaboration between business and universities, prepared for the Treasury in December 2003, stated that
	"firms with local markets chose to work with a local university in almost 90 per cent. of their collaborations."
	That is certainly the case in Sunderland, where the university has enjoyed a close partnership with Nissan. Indeed, it is arguable that the partnership between Nissan and the computing and technology department of Sunderland university has helped Nissan to achieve cost reductions that have kept the company in the UK. It is one of the largest manufacturing companies in the country, so keeping it here is surely in the national interest. Yet under the criteria currently applied, such a collaboration has not qualified for public research funding since 2001, even though it has been assessed as nationally excellent.
	As the Minister may know, the economy of Sunderland and the north-east has undergone dramatic changes in the past 15 years. A huge swathe of our traditional industry—mining, shipbuilding and engineering—has been swept away by the remorseless onslaught of the global market. We have had to reinvent ourselves, and we have done so with some success. Besides attracting Nissan and its subsidiaries, Sunderland is promoting itself as a centre for software businesses. The university, along with local companies such as the Leighton Group, is playing an important part in that with nationally excellent and internationally recognised research in software and digital technology. However, under the current rules, little or none of that research, which is so important to the local, regional and national economy, attracts public funding. That does not make sense.
	It is a matter of record that universities that do not qualify for significant public funding have a much better record of leveraging in funds from industry and elsewhere than those that do qualify. On average, Russell group universities, which receive the bulk of the core public research funding, attract less external funding than they receive from the public purse, whereas Sunderland, for example, has attracted more than four times as much funding from local industry and elsewhere than it has received in core public funding. The weakness of having to fund research on an ad hoc basis, however, is that the funds are not dependable and predictable in the same way as public funds allocated on a stable basis over a five or six-year period.
	I emphasise that I am not making a plea for a lowering of standards or for tearing up the rulebook and starting again. I merely request a tweaking of the criteria, to permit perhaps 10 per cent. of the research and innovation budget to be spent in universities that specialise in research of national, as opposed to international, significance.

Philip Hollobone: I congratulate the hon. Gentleman on his remarks, because I am 100 per cent. behind him. Many of my constituents attend the university of Northampton, which would like to access this quality-related funding. To many of my constituents it would seem absurd that 76 per cent. of this budget should go to just 15 per cent. of the universities. The modest proposal that he is making would mean £5 million or £10 million a year for many more universities, which would make a huge difference to their budgets.

Chris Mullin: I am grateful for the hon. Gentleman's support. I have referred to the university in Sunderland, the city that I represent, but it is undoubtedly true that many of the newer universities would benefit from such a measure and that they should do so. Were the Government to allow perhaps 10 per cent. of the research and innovation budget to be spent in universities that specialise in research of national significance, the benefit to the UK would be disproportionate. Such an approach would allow many more universities to create and maintain strong research infrastructure and to respond to newly emerging markets, and that could only be to the lasting benefit of the economy as a whole.
	Finally, I hope the Minister will not tell me that it is beyond his power to do any of this, because although final decisions are for the funding councils, the priorities and criteria are a matter for the Government. The allocation for the next five years is due to be announced in January, so time is short. I hope that he will take action as soon as he returns to his Department.

David Lammy: I am grateful to my hon. Friend the Member for Sunderland, South (Mr. Mullin) for raising what is obviously a very important issue. I know that he has worked closely with the university of Sunderland for many years. I hope he is aware that in my previous post as Skills Minister, I had occasion to visit the north-east, spending time in the Sunderland region. I know of the exemplary work being done in further and higher education in that region. I am also aware that maintaining links with industry has been key to some of the successful regeneration in that area. I very much respect the manner in which he made his remarks and the urgency with which he considers this issue.
	The university of Sunderland undertakes innovative research in a variety of subjects. I was particularly interested to learn that its scientists have recently developed a hydrogen-powered car, in collaboration with Nissan—that is clearly a huge step towards tackling climate change. That product could be experienced by people not only in Britain but all over the world, and it results from the research at that institution.
	A modern knowledge economy needs a thriving research base, and the university sector is a key part of that. The Government invest in university research through the dual support system. My hon. Friend mentioned the Higher Education Funding Council for England funding of £1.5 billion rising to £1.9 billion, in addition to which sizeable funding is provided through the research councils. We have been able to double that in real terms from £1.3 billion in 1997 to £3.4 billion in 2007-8. By the end of this spending review period, my Department's funding of research through the HEFCE and the research councils will reach almost £6 billion per annum, most of which will go to our universities.
	Our investment in research feeds through into improvements in the quality of life and the economy in a range of ways: it helps companies to develop new products and services; it creates new businesses; and it attracts research and development investment from global business. Research also helps to improve our public services—we need only consider the benefits in terms of health care and our beginning to understand the vexed issue of climate change. I might say, too, that policy makers can also benefit from working with that research base. Finally, of course, the process of undertaking research helps by developing highly skilled people who can enter the marketplace and work in it.
	At the end of my hon. Friend's speech, I noted a request for 10 per cent. of the quality-related research funding to be top-sliced and distributed differently. Even though I have been in post for only a week, I have been an active Minister and I have had dinner with the Million+ group, of which the universities of both Sunderland and Northampton are a part. The issues were put forcefully to me just a few nights ago.
	My hon. Friend will understand that this country has a diverse range of universities. In my conversations with Universities UK, the Russell group of universities and the 1994 group of universities, I have heard a range of views. The idea proposed by my hon. Friend is one of a number in relation to research funding that have been suggested by people in the university sector.
	I respect the way my hon. Friend felt able to support the principle that investment in research is built on the key plank of focusing that investment on excellent support. The 10-year science and innovation framework, which was published in 2004, emphasised two important objectives: the need for world-class research at the UK's strongest centres of excellence and the need for sustainable and financially robust universities and public laboratories across the UK.

Chris Mullin: The difficulty is with the definition. As I understand it, the research favoured at the moment is classed as internationally significant, but I was talking about trying to widen that definition slightly to include some research of national significance. I gave the example of the fact that the collaboration between the university of Sunderland and Nissan had helped to keep that company in this country. As it is one of the largest manufacturing companies in the country, it must be in the national interest to go down that road.

David Lammy: I was coming to that point. I think my hon. Friend's example showed national excellence and, as a consequence, international excellence. Nissan, of course, is a global company and we are living in a global world. In restating the principle, I simply say that we should fund excellence. Notwithstanding the difficult global financial times that we are entering, as the fifth richest economy in the world we must look to fund world-class excellence. The range of universities receiving funding covers a broad sweep of our university base, and all that money is funding excellent research, wherever it is in the country and whatever diversity is offered by a given university.
	Let me return to the commitment that we made in the science and innovation framework, which was:
	"UK research funding from Research Councils and HE funding bodies will continue to be driven by excellence wherever that may be found."
	That was the stated principle, and I hope it goes to the heart of what my hon. Friend was saying. The Secretary of State has restated our commitment to the very best research and I am happy to restate that position now. Within the framework, Government support has helped the UK research base to sustain an excellent performance against strong global competition.
	The UK is second only to the US in global scientific excellence. With 1 per cent. of the world's population, we carry out 4.5 per cent. of the world's research and claim 8 per cent. of scientific publications. Our science is the most productive and efficient in the G8.
	Research excellence is widely spread. My hon. Friend referred to the 2001 research assessment exercise, in which 75 higher education institutions across England with at least one department rated 5 or 5* took part. Institutions with several excellent departments receive correspondingly greater allocations.
	I am of course aware of the concerns that fundamental or blue-skies research, such as investigating the origins of the universe, is favoured in an unhealthy way over research that is done jointly with business or with a clear application in mind, and the HEFCE and the Department share those concerns. A new research assessment exercise is under way, with the results due in December, and it will form the basis of the allocations for the next academic year. I know that the HEFCE has made a number of changes to improve the exercise and give it the clear goal of properly valuing excellence across a range of research types. That will include applied research and research with business, wherever that is conducted.
	My hon. Friend is rightly proud of the work that his university does with business, and the Government very strongly support collaboration between universities and business. With support from the Government, the higher education community has transformed its relations with business over the past decade. Different businesses want different things from higher education, but some are motivated to access the best research in the world, wherever that may be. The UK has reaped the rewards, through inward research and development investment by international firms.
	My hon. Friend mentioned Microsoft, which has made a major research and development investment. I could also mention Boeing's investment in Sheffield's advanced manufacturing research centre, or Hewlett Packard's research at Bristol. There are many more examples but I recognise that, as my hon. Friend emphasised in his contribution, many firms will want to work with a local partner that can help to solve a local or specific problem that may well be of national interest.
	I know that the university of Hertfordshire has taken an extra step and merged with its local Business Link organisation to support businesses further. One benefit of our higher education system is its diversity, which allows different institutions to play to their strengths. That understanding of diversity and range has really emerged only over the past 10 years.
	Ensuring that we have an excellent research base is the starting point for encouraging work with business, but it is by no means the end of the process. Recently, the HEFCE has started to allocate part of the quality research funding to reward research income from businesses, while the higher education innovation fund invests in knowledge transfer capability between higher education and business. That fund helps institutions to attract further funds from businesses and other users, and it also helps to support collaborative and contract research as well as consultancy and training.
	The innovation fund is deliberately spread more widely than research funding, and it is important to note that Sunderland university will receive more than £4.3 million from it over the three years to financial year 2010. Many of the organisations receiving the maximum allocation under that fund are not among the major research institutions.
	We have also created the new technology strategy board, one of whose key aims is to help businesses to access the best research base. Of course, it is early days, but as a result of setting up the board, we are doubling the number of knowledge transfer partnerships. Those programmes have been running for many years, and they are a highly respected way for universities to work with businesses. Again, many of the institutions that do well in attracting those funds are not the biggest research institutions.
	We are also working with the regional development agencies to introduce innovation vouchers to encourage small and medium-sized businesses to work with a range of universities. All that is bringing great rewards and inward investment. There has been a huge increase in interaction with businesses, public services and others, and the latest higher education business and community interaction survey shows that the income going to universities from users has risen to almost £2.6 billion per annum.
	The importance of universities in the 21st century was further recognised when the Department for Innovation, Universities and Skills was created by the Prime Minister in June 2007 to ensure that the issues that my hon. Friend raised were on the table, and that the dual-purpose nature of our funding base was brought together. The importance of that mission is made greater still by current economic circumstances. Indeed, when he created the National Economic Council earlier this month, the Prime Minister stressed the need to continue to equip the economy with the right investment in skills, in science and technology, and in our infrastructure.
	In partnership with the community, the Government have transformed the research base. In these tougher economic times, I hope to get us to a point at which local innovations for local businesses, and other innovations, are world-class, follow an international template, and provide opportunity for the country. Indeed, Sunderland university is one of the institutions doing all those things. I hope it will continue to provide jobs, opportunities and innovation for local people in future. The new research assessment exercise will runs its course, with the changes that I have outlined, and both the Government and the HEFCE will be aware of the points that my hon. Friend raised.

Chris Mullin: I very much welcome what the Minister says. May I pin him down on one point? Will he confirm that I am right in thinking that although Ministers obviously do not have a say in the day-to-day allocation of funds, they do set the priorities and the criteria? Secondly, will he confirm that he will be talking to the HEFCE about its priorities for the next funding round?

David Lammy: I can confirm both those things. My predecessor, my hon. Friend the Member for Harlow (Bill Rammell), was in dialogue with the HEFCE about the new arrangements for the research assessment exercise. My hon. Friend is right to say that the HEFCE will come back to the Department towards the end of the year. Given the importance of our universities, individual allocations must rightly be independent of Ministers. Ministers cannot cherry-pick for particular universities, and we must absolutely protect the integrity of that approach. However, he is right to say that the framework for that research must be set by the Government and the HEFCE, working in co-operation.

Chris Mullin: When the Minister next talks to the HEFCE, will he put to it my suggestion that 10 per cent. of funding—we can argue about what the percentage should be—be put into quality, or excellent, research, of national, as opposed to international, significance?

David Lammy: I repeat that the HEFCE is well aware of those representations that have been made, especially by the Million+ group of universities, and by other representative groups. I understand where my hon. Friend is coming from, and I also understand where the hon. Member for Kettering (Mr. Hollobone) is coming from. The HEFCE is well aware of the concerns, and the conversation continues. The importance of our research base and the work done in our universities is something that I am very pleased to emphasise this evening.
	 Question put and agreed to.
	 Adjourned accordingly at  half-past  Seven o'clock.